Renting versus buying a home – which is better?
Buying a home is one of the huge financial decisions many people will have to undertake in their adult lives. However, there is also the option of renting for those who haven't decided on whether to buy or not. Nevertheless, owning a house is dependent on so many factors including finances, future plans, your age, the prevailing real estate market, and even the neighborhood. Thus, at some point, you will have to decide whether it is better to rent or to buy a house. As much as this is a big step financially, you need to know the factors to consider when deciding on which option to go for.
When is buying a house better than renting?
If you have enough money to buy a house
Even if you are ready to be a homeowner but you don't have enough money to buy the house, you will have to wait a bit longer to realize your dreams. However, if your finances are aligned and you have no other hindrances buying a house is the right decision.
Nevertheless, having enough money for the down payment should not be equated to being financially ready. Some people are so eager to buy a house they compromise on really important things to achieve that. Don't spend your tuition fee to buy a house if getting a higher education is more important. On the same note, you shouldn't be using money meant for paying medical bills to pay for a house. Besides that, don't buy too fast even if you have found a lovely house.
Putting less money towards the down payment or getting a high-interest mortgage because you haven't taken the time to fix your credit is going to negatively affect your finances in the future. Thus, be wise when making this decision.
When you found the right house
You'll probably have a mental picture of the house you want to live in even before you decide to go down that path. Note that you cannot up and leave just because you don't like the house if you have bought it already, unless you have enough money to waste. Therefore, buy a house when you have found the right one for you. This requires patience since it may be months or even years before you have found your dream home or one that can be renovated to meet your preferences.
If you’ll be living there for a long time
If you will be living in the region for more than half a decade then you should buy a house instead of renting. Renting is expensive in the long term and instead of paying rent for five years, it would be better to put that money towards buying a house. In five years you will have some equity in the house and if you pay the mortgage fast, in a decade you may have cleared the loan. Someone who will have rented for 5 years or more will have no tangible benefit at the end of that period.
When you want stability?
Depending on your current life situation and future plans you can predict how the next decade or two are going to be like for you. If you just got engaged or just had a baby then buying a home should be in your plans. However, make sure you have picked a house that can accommodate future changes, like a growing family, so that you won't be in the market for a new house too soon than you would like. Buying a house does have other costs besides the down payment and mortgage. You don't want to be spending money unnecessarily every few years because you didn't plan for the future.
If you ready to handle homeownership responsibilities
Buying a home comes with responsibilities and many people realize that when it is too late. The house won't be in perfect condition forever. You will have to pay for repairs, replacements, and even maintenance. These are costs that can disorientate you financially if you had not prepared for them. You need to take a look at the responsibilities you will have as a homeowner before you decide to buy a house. This gives you insight into what will be expected of you once you sign the purchase documents. Having an emergency fund large enough to fix or replace the most expensive appliances or structures in your house will give you peace of mind. It should be on your budget when you are buying a house.
Even if you won't be paying rent you will have to pay property taxes to the government. Defaulting these payments puts you on the wrong side of the law and attracts a fine. You should budget for property taxes besides your mortgage and other bills you will be paying to keep the house in a livable condition.
However, there is an upside to this because you can deduct your mortgage interest when you filing tax returns to get tax relief. Nevertheless, this is not applicable in all situations and you have to check out your state property tax laws to determine whether you are eligible or not. Budgeting for these taxes early makes it easy for you because you will never have to borrow to pay them. Taxes aren't something to keep you from owning the home of your dreams.
When is renting better than buying?
If you aren’t ready to settle down
If you are a young adult who is only getting started in life you may not have everything figured out in terms of where you want to settle down. This is the time when a lot of academic or job opportunities abroad or in other states come up. If you were renting it will be easy to up and leave the next day. Therefore, until you are sure of the place you want to live in for the next decade or more you should just rent.
When you can’t afford to buy a house
Buying a home is costly and you need a substantial amount of money to get a decent house. Therefore, renting gives you enough time to get your finances in order before making the purchase. There are lending institutions that can give you a mortgage even if you don't have any money for a down payment. Others will only ask for a 5% downpayment. Nevertheless, these loans attract high-interest rates and in long run, it may not be worth it. Also, it will be difficult to get a low-interest mortgage if you have a poor credit history. It is better to wait and save enough money for at least a 20% down payment as well as fix your credit before buying a home.
When it comes to buying vs renting, buying is the best option in most cases unless you don't have the money, your credit history needs fixing or your work or life commitments require you to move around a lot. Honest reflection on your life as well as finances will give you insight on which direction to take.