Are you in the market for a house? You might be wondering whether it’s better to buy or rent. This is a major decision that can have a significant impact on your life and finances.
I have owned three different homes in my life, so far. I bought my first home in my early twenties, and since I didn’t make as much money then, that house looked very different from the one I’m currently living in. Since I have been working for a few decades now and have saved up some money, I have been able to afford purchasing a more expensive home in a different market.
I haven’t always owned a home though. I rented when first being out of school, since I didn’t have much money saved up, and then I rented for a few years in between my second and third houses, while I was divorced and single.
The answer to the question of whether to buy or rent a house is, it’s totally up to you! It depends on your unique financial situation and lifestyle. Owning a house might not make sense for your situation now, but maybe it will later. Let’s find out if owning or renting a house is right for you!
Can You Financially Afford to Buy a House?
Buying a house is usually an expensive purchase, so the majority of people need to take out a mortgage loan to purchase one. Would you qualify for a mortgage? Of course, you need to make enough money to cover the monthly mortgage payment, but to even qualify you need to have a good credit profile.
Generally, the higher your credit score, the lower interest rate you can qualify for on your mortgage. If your credit profile isn’t as good as it could be, check out my related post for tips on improving your credit scores: 13 Ways to Improve Credit Scores Fast.
In addition to being able to afford the monthly payment, you also need to consider the other costs of home ownership, like utilities, property taxes, appliances, and maintenance and upkeep. Opinions vary on how much these things should cost you, but as a general rule of thumb, try not to spend more than 40% of your monthly take-home pay on the costs of home ownership, including the mortgage.
Do You Have an Emergency Savings Fund?
You should generally have an emergency fund no matter if you’re buying or renting a home, but it is crucial for owning a home. With owning a home, if something major comes up, like a broken appliance, roof leak, or basement flood, you are responsible for it. If you don’t have enough money saved up or leftover after paying your mortgage and bills, then you can end up financially strained. Making sure you have saved up at least an emergency fund before buying a house can save you from financial stress and missing a bill or mortgage payment.
The amount you should save up for an emergency fund varies, depending on your financial situation. I would recommend saving $1,000 at a minimum to get started. Check out my How to Save $1,000 for an Emergency Money Fund in 90 Days or Less post for tips on getting started with saving for an emergency fund. If you’re up for a challenge, sign-up to download my free savings challenge templates.
If you’re looking to buy a house in the near future, you might also consider looking at your budget to see if it’s financially feasible. If you don’t have a budget and would like some tips on creating one, take a look at my 7 Steps to Create a Personal Budget blog post.
How Long Will You Live There?
If you are only planning to live somewhere for a few years, renting may make more sense than buying. That way, you won’t have to go through the process of getting a mortgage and then selling your house later.
Getting a mortgage isn’t an inexpensive process. There are lots of potential fees like a lender fee, appraisal fee, survey fee, title insurance fee, and closing fee, to name a few. Also, if you aren’t able to afford a 20% down payment, you’ll have an extra fee added into your monthly payment for something called private mortgage insurance (PMI). This type of insurance protects your lender if you default.
Even if you decide to rent and the monthly rent is slightly more than it would be if you purchased a house, because of all of the upfront costs you would need to pay for obtaining a mortgage, it still might make more financial sense to rent. There are break-even calculators online that can help you with estimating things like this.
On the other hand, if you’re planning to stay in an area for five or more years and can afford it, purchasing a house might be the better option for you. You’ll be building equity in a house that you own. Historically, values of houses have generally increased over time. This means that if you want to sell your home, hopefully the value has appreciated so that you can sell it for more than you paid for it.
Where Do You Live?
Depending on where you live, buying or renting a house could be more affordable. Purchasing a house in a large, expensive city like New York or Chicago proper can be near impossible. The lack of single-family homes in those areas and the high cost of real estate drives up the prices. You would probably be better off renting, or moving out to the suburbs for more home ownership affordability.
Housing costs in more desirable and more densely populated areas of the Unites States are just more expensive. Purchasing a house in Los Angeles will most likely be more expensive than purchasing a house in a midwestern city like Indianapolis or Saint Louis.
Do You Have Time to Take Care of a House?
If you like to travel frequently or don’t want to spend time taking care of a home, then renting may be a better option for you. Many houses require time spent on things like grass mowing, landscaping, painting, and repairs. If you don’t have the extra time for things like this, if you have a demanding job, or if you would just rather spend your time on other things, who could blame you! It just may be that home ownership isn’t right for you right now, and there’s nothing wrong with that.
There really isn’t a definitive answer as to whether buying or renting a house is better. It totally depends on your unique situation. You should carefully consider the benefits and expenses associated with each to see which makes the most sense for you.
Are there any other considerations you would add to this list?
Check out some of my other posts on saving, making, and investing money:
- 6 Steps to Financial Planning for Beginners
- 7 Ways to Make Money Online Fast
- Why Should I Invest in an IRA?
- 7 Types of Inflation Resistant Investments
- 7 Habits of Successful People Who Are Never Broke
- 5 Money Habits to Boost Your Financial Wealth
- 7 Top Financial Mistakes and How to Avoid Them
- Stop Spending and Start Saving $1,000 With a 90 Day Saving Money Challenge
- How to Save $1,000 for an Emergency Fund in 90 Days or Less
- 7 Steps to Create a Personal Budget
Disclaimer: This information is intended for educational purposes and is not tailored for the needs of any specific investor. It is important to conduct your own analysis and research before making any investment. It is recommended to independently research and verify or seek financial advice from a professional in connection with any information on this website before using it to make an investment decision or otherwise.