Home Buying a Home Should You Buy or Rent Your Home?

Should You Buy or Rent Your Home?

by Kimberly Fischer
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Deciding whether to buy or rent is a decision most people have to make at least once in their lifetime, and it’s not always easy. For generations, home buying has signified financial success and achieving the American dream. That is until the mortgage crisis of 2008 showed us owning an expensive home during hard times is more synonymous with a nightmare that you can’t wake up from. According to a Pew Research Center report, in the decade following the crisis, the percentage of U.S. households renting their home steadily grew to the highest point since 1965. On the other hand, massive wealth has been built through real estate, and, according to this article by Forbes, investing in it is considered safe relative to other asset classes.

If it wasn’t already apparent from the above discussion, the question of whether to buy or rent doesn’t always have a clear answer. What’s right for one person isn’t necessarily what’s right for someone else. Below are a few questions you should ask yourself before making a decision.

What is my financial situation now and what will it be in the future?

You shouldn’t just compare mortgage and rent payments of similar properties to find the most cost-effective option. There are additional fees associated with both that need to be considered. Although you may be paying more for home buying in the short term, you are building equity in the long term. The same can’t be said for renting, but maybe you don’t have the money or credit now, or you would rather invest in something else.

Buyers need to pay lenders and third parties that help with the home buying transaction, including home inspectors, attorneys, and other service providers; these fees are known as closing costs. Another upfront cost is your down payment, often ranging from 3 to 20 percent. Each month, for a set amount of years, usually 15 or 30, you’ll pay your mortgage, which includes the loan’s principal and interest. Bankrate also suggests saving for homeowners insurance, property taxes, maintenance, and homeowner’s association dues (if applicable).

Upfront costs for most rentals include a security deposit and the first and last month’s rent. If you have a pet, you might also have to pay a pet deposit, says HomeLight. And, if you move frequently, moving costs will add up quickly. Not only do you have to pay the agreed-upon rental price every month, but your lease may also stipulate your responsibility for utilities, such as water, electricity, gas, cable, and internet. Additional expenses include parking, storage, and renters insurance. 

Do I want more flexibility or more stability?

Assess what type of lifestyle you live, your career goals, and your family and relationships. Buying and maintaining a home is a huge responsibility and time commitment that you may not be ready for now, or ever. With renting, you can leave that up to your landlord, but you’ll lack the stability of staying in one place for an extended period of time – which may or may not be an issue for you.

If you buy, you have more stability and are able to put down roots in the community. This may be particularly important if you have kids and want them to grow within the school district. You won’t have to worry about picking up your life and moving frequently, and you’re also free to decorate or renovate your home as you like.  

On the flip side, renting gives you more flexibility to move when you like or as needed. As Quicken Loans explains, you might be hoping for a job promotion that’s halfway across the country, or you’re new to the area and want to explore living in different neighborhoods before settling down somewhere. In exchange for flexibility, you’ll have less freedom to make the space your own. Your landlord could also decide to sell or stop renting at any time, leaving you desperate to find housing elsewhere.

What are the market conditions in my area?

Some markets are simply more favorable to either buyers or renters. Maybe mortgage rates are low and housing inventory is high – good for buying. Or, housing costs are high and rent control laws are in place – good for renting.

Real estate tends to appreciate in value over time, which can create great profits for homeowners. But, it should not be assumed that home prices will always rise each year, says Fidelity. When the real estate market collapsed beginning in 2007, the median home price in the U.S. dropped nearly 13% between 2007 and 2009. Some markets bounced back, others didn’t fare as well. Consider both situations before buying a home. 

Rental prices are also subject to change, with landlords raising and lowering rent according to demand. Examples of this are being seen now across the country, as the pandemic’s layoffs and work from home policies have pushed people out of expensive cities and towards suburbs and their families’ homes. San Francisco has suffered a -18% rent decline, while Virginia Beach increased by 5 to 6%, as stated by Bloomberg.

Verdict

Buy if you’re confident you’ll stay in your home for at least four to five years, are financially ready, and have found the right house you’re willing to put in time and money to maintain. 

Rent if you’re unsure of what neighborhood you want to live in, are going through a major life change, don’t have the budget or want the responsibilities associated with homeownership, or have an unstable job situation.

Article by Megan Kong, REX Homes

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