Should You Rent or Buy Your Next Home?
Buying a home has always been part of the American dream, but isn’t necessarily the smartest financial move for you?
Like many things in life, the answer is… it depends.
Everyone’s circumstances are unique and when it comes to a giant financial decision like buying a home, you can’t just blindly follow “traditional wisdom.” What might be the smart move for a lot of people, might not be the smart move for you. There’s a laundry list of things to consider when it comes to deciding whether or not to buy or rent a house.
Let’s break down some of the biggest ones and you can decide for yourself.
Unless you are independently wealthy, the first thing you need to consider when it comes to this decision is your current financial status. Ask yourself these questions:
- How much do you make a month?
- Does that amount vary (with commissions, bonuses)?
- How much do you have saved for a down payment?
- How much can you afford a month?
- Do you have any slack in your budget if something bad happened?
- Do you have an emergency fund?
- Can you comfortably afford the mortgage, interest, insurance, tax and maintenance expenses on a house?
We are constantly bombarded with people telling us that we’re wasting money if we’re renting instead of buying. Or that since you get to write off your mortgage interest for income taxes it’s stupid to not take advantage.
Well, if you have the money to cover the expenses of home ownership, have enough of a down payment to secure a good 15 or 30 year conventional loan and can deal with the unexpected, then you should take advantage of building equity and tax breaks.
But, to spend $10,000 a year on interest to get $3,000 back from the government doesn’t make any sense if you can’t really afford the house. Save your money while you rent and buy when the time is right for you.
Action Item: Write up a realistic budget, use a mortgage calculator, add in all of the other home owner expenses and see if you can afford to buy. If you’re confused or need more help, talk to a unbiased third party like a financial advisor or accountant.
Whether you should rent or buy a home depends a lot on what you plan to do over the next couple of years and beyond.
Are you going to have kids? Are your kids going to be starting school? Are you trying to move up in your company and may have to move to make that happen? Are you married or planning on getting married?
What stage your life is in and what you want to do with your life play a huge role into your decision here. Renting makes sense when you’re in the early stages of your life, later stages of life or are in transition. If you have the money and want to put down roots, then buying is the way to go.
Action Item: Write down your 1, 5, 10 and 15 year goals. Then create a pros/cons list about buying or renting.
There is no set way to do things. There is no right/wrong path when it comes to home ownership or how you choose your living situation. It all revolves around the circumstances. The first step in the process is being honest and as unbiased as possible with yourself. Start there and you’ll find your answer.