America’s homeownership is still hovering near all-time lows, according to the U.S. Census Bureau. This leaves more Americans renting than ever before. Does that mean you’re destined to rent for years to come?
The decision to buy vs rent is a personal one. While there’s no exact science, there are two factors to consider, a few questions you can ask yourself and an exercise you can try (no muscle required) to determine which option is best for you.
Buy vs Rent Factor 1: Timing
Your timeline can be affected by a number of factors, like a serious long-distance relationship or uncertain employment. If either of these factors are descriptive of your situation, there is a strong chance that you will not be living in your next property five years from now. In this case, renting might a better path.
In addition to the length of time you plan to live in your next home, you’ll also want to consider the amount of time you have available for the ongoing upkeep of a home. If you simply don’t have the time or ability to care for your own home, renting may be the way to go.
Buy vs Rent Factor 2: Finances
A quick google search, “should I buy or rent?” often results in a Rent vs Buy calculator, which can be a great tool to help you in your decision-making process. Beyond the math, ask yourself these financial questions:
Question #1: Can I qualify for a mortgage?
To determine whether you have enough cash for a down payment, closing costs, and commissions, consider that:
- The average down payment is 20% of the cost of the home
- Closing costs average 1% of the cost of the home
- Commissions average 5-6% of the cost of the home
This means that to purchase a $250,000 home, you’ll need about $65,000 up front. You’ll also want to consider your credit score. According to the Lenders Network, your score should hover around 700.
Question #2: What is the monthly cost difference between buying and renting?
Homeowners pay some monthly expenses that don’t apply to renters. These include:
- Property taxes
- Homeowner fees
While it may seem like renting is the way to go to avoid these costs, don’t forget the first factor (timing). After five years of living in your purchased home, there is a good chance that your home has appreciated enough to overtake the original transaction costs (like closing costs and commissions). But, if you think you might not stay in a home for at least three years, buying may be a risky option for you.
A Cardio-Free Exercise
To help you make the decision whether to buy or rent a home, try this: if the estimated costs of mortgage + insurance + property taxes + maintenance exceed your current rent, set aside the difference for a couple of months. If this is too constricting and results in financial instability, consider waiting to buy (or lowering your budget). (Source: Time)
To make an informed decision on whether to buy or rent, it helps to get organized. Having a game plan can help you make smart real estate decisions that keep your financial situation comfortable. Have questions? Our agents are happy to help.
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