Should You Rent or Buy a Home?
Owning a home has a lot of perks, but it may not be the right option for everyone. If you’re torn between renting or buying a home, consider the following five factors.
1. The Down Payment
As of September 2016, the average price of a new home in the U.S. was $377,700, according to the U.S. Census Bureau. Conventional mortgage loans usually require a 20 percent down payment, which would be roughly $75,540 for an average-price home.
“Even if a smaller home in a less-expensive area can be found, the down payment will still be a major consideration,” points out Timothy G. Wiedman, a retired personal finance professor. “It may be possible to purchase a home without putting 20 percent down — by qualifying for a Federal Housing Administration mortgage loan, for example. But keep in mind that it may result in additional expenses, like private mortgage insurance.”
2. Maintenance Costs — and Efforts
When you rent, your landlord is likely responsible for maintenance and associated costs. But if you own and your furnace dies or your refrigerator is on the fritz, you’re responsible for fixing it yourself or hiring someone to do it. Consider whether you’re ready for that to fall on your plate: Are you really handy around the house, or would you prefer those tasks go onto someone else’s to-do list?
3. Building Equity
Perhaps one of the biggest downsides to renting is that while your rent payment helps keep a roof over your head, it doesn’t truly buy you anything. Homebuyers, on the other hand, can build equity (a greater amount of ownership) each time they make a mortgage payment. And once the mortgage is paid in full, homeowners have the option of selling and potentially seeing a return on their investment, according to Forbes.
4. Stability Versus Flexibility
If your career is relatively stable and you plan to stay in the area for the foreseeable future, you may want the stability that comes with putting down roots and buying a home, according to Forbes. On the other hand, renting may be a better option if you want the flexibility to, say, pursue a dream job across the country next year, Forbes says.
Also, the fees related to buying a home may often amount to 10 percent of the sale price, Zillow reports, which may not be worth the expense if you plan to move again in a few years.
5. Personal Fulfillment
Homeownership can transcend far beyond finances. Buying a home allows you to customize your living space, whether that means lush landscaping, a kitchen renovation or a bright turquoise accent wall that would likely land you in hot water as a renter. Buyers are also likely to feel a greater sense of belonging to their neighborhood and community compared to renters, who are more likely to stay for a shorter time, according to Money Crashers.
Our Rent vs. Own Calculator can help you further crunch the numbers to help decide whether renting or buying is right for you.