Renting vs. Buying: 3 Questions to Answer about Yourself

Renting vs Buying 3 Questions to Answer about YourselfVarious homeownership surveys show that about two-thirds of renters aspire to someday be homeowners. And the National Association of Realtors reports that about one-third of all homebuyers each year are first-time buyers.

Depending on the market, renting vs. buying is often a financial decision, which makes the most sense for a household’s budget. But even when one or the other is less expensive, at least on the surface, homeownership may not be for everyone. When it comes to renting vs. buying, here are three important questions you might ask about yourself.

Are you financially disciplined?

Renting is sometimes described as “throwing money away.” When you rent, you’re lining a landlord’s pockets. You make a rental payment each month, but you’re not gaining any equity in the property. The opposite is true when you buy: You’re paying the mortgage down while the home, presumably, appreciates in value.

In areas where it’s cheaper to buy than to rent, buying might seem like a no-brainer. Paying a mortgage down can be considered a form of forced savings, and if buying is cheaper anyway, it would seem a pretty solid move.

But where it’s cheaper to rent, it can make more financial sense beyond the lower monthly housing cost. If you’re disciplined enough, you could take the savings from renting each month and invest it in something that earns a rate of return. Even if you use the difference each month to increase your contribution to an employer-sponsored retirement plan, you might end up with more money than your equity in a purchased home might provide over the same time frame.

But if you spend the money you save by renting each month, you’re gaining nothing over the long term. The forced savings of homeownership might be a better option for those who are less-disciplined financially.

Are you handy?

Considering more than the monthly payment is important when it comes to renting vs. buying. When you rent, your landlord is largely responsible for repairs and maintenance of the property. When you’re a homeowner, you’re responsible. That responsibility comes with expenses.

One way to look at maintenance expenses might be to consider them part of your monthly cost. For example, if your mortgage payment would be the same as monthly rent, it might seem prudent to buy. But if you add, say, $100 a month to your homeownership costs to cover maintenance, it might not be as attractive.

It also helps to be handy. The more work you can do yourself, the more money you’ll save as a homeowner. When you rent, you pick up the phone and the landlord takes care of problems that come up. When you buy, it will get expensive if you must call a contractor every time something arises. Being able to paint, do light plumbing work, maintain a home’s exterior, and more will save you some money.

Is Your Job Secure?

One of the major reasons people move is because of work. And, often, people move to where the work is. This can be problematic if you’re a homeowner.

Because of the down payment and closing costs required to buy a home – and because the early mortgage period involves paying mostly interest – most homeowners stand to lose money if they sell in the first three to five years after buying a home.

In most cases, the longer you stay in a home, the better off you are financially. Sometimes, because of their jobs, people are forced to move sooner and/or more frequently than they want. And this can be costly as a homeowner.

There are considerations other than pure finances when it comes to renting vs. buying, and the decision is one that’s different from individual to individual. So it’s important to know the answers to some basic questions about yourself when making your individual decision.

 

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