Many people of all ages face this dilemma: you’re ready to move, but can’t decide if you should rent or buy. This isn’t a question that has a one-size-fits-all answer. In fact, the answer varies greatly depending on your finances and life circumstances.
Here are some things to consider:
First, look at the cost of renting a place that you want to live in. This number should include not only monthly rent payments, but also a refundable security deposit as well as monthly renter’s insurance.
Second, compare this number to the monthly cost of home ownership. This should include your mortgage (principal and interest), as well as property taxes and homeowner’s insurance. You also might want to include maintenance costs as well, as those have a significant impact on your overall expense.
Once you have compared the options of renting vs. buying, you need to make a decision. If the costs are equal, or even if buying is 10-15% more costly, it still likely makes sense to buy since the interest on your mortgage will be tax-deductible.
Beyond monthly expenses, there are some other factors to consider when deciding between renting and buying. Here are three:
- Do you have enough for a down payment? In most cases you will need to put down 10% towards your mortgage, or even 20% if you want to avoid paying PMI. Is this something you can afford?
- How long are you considering staying? If you aren’t going to be living in your house for a minimum of three years (preferably five years), don’t even consider making a purchase because you won’t make back the cost of the transaction.
- Are you ready to be a homeowner? When problems arise when you own a home, you are the one who is responsible to address them. Is this something you want to shoulder?
Bottom line, make sure you sit down and run the numbers on many of the available rent vs. buy calculators online. Play out as many scenarios as possible, take your time, and be thorough. Then make the decision that best benefits you in your current circumstances.