One of the big questions faced by many people, especially those who have to move around for work a lot, is whether it’s a better idea to rent or buy a new home. There are good arguments on both sides. Rents in most urban areas usually are higher than mortgage payments and a house normally gains value over time. On the other hand, maintenance and insurance is less of a hassle when you rent, and there is something to be said for not having to go through the entire process of buying and selling if you have to move.
The reality is that this is a complicated question and there are no easy answers. There are calculators available online, such as this one from realtor.com, or from trulia.com, or from The New York Times, that can break down the numbers by zip code, rent you’re paying–or expect to pay–and the cost of the home you’re interested in. This can give you an idea how long you need to be able to stay in your home to make it cheaper overall to buy rather than rent. But of course, these are just estimates, and there are many more factors to consider than cost.
- Initial investment to move in is relatively cheap, since it only requires a small deposit and possibly renter’s insurance
- Money that doesn’t go to down payment, insurance, or other purchasing costs can be invested or saved for similar or higher returns
- Renters have less responsibility for damage and maintenance
- Easier to budget, because rent and bills don’t fluctuate much
- If you don’t expect to stay in the same place for more than five years, usually ends up being cheaper overall
- Is not a good investment of money for the long-term
- Represents a nest egg that can pay off in the long run
- Can provide tax benefits depending on state tax regulations
- Costs for rent climb steadily, home prices can sometimes drop allowing good chances to buy
- Freedom to remodel, redecorate, make changes to home
- Fewer restrictions for children, pets, or uses of the living space
- Psychologically comforting to have a place to make into a home and pass down
Speaking generally, if you are young and starting a career, it might be a good idea to rent for a while as you focus on promotions at work. When it’s time to start a family or have settled into your long-term career prospects, consider buying. A way to gauge whether you’re ready to buy a home is to calculate probable costs for buying the house–mortgage plus insurance, property taxes, potential maintenance and utility costs–and see if it that comes to more than your rent and utilities. If so, see if you can save that extra money each month and get buy without it for a while. Give it at least a few months to see the difference. If you can afford, it, then you might be ready to buy and you might as well put those savings toward the down payment. If not, you’ve still got a small savings.
Of course, if the estimated costs of owning a home come to less than your rent and bills, then you should probably talk to a realtor.