To Rent or Buy; That is the Question

A common question, especially among young or first-time buyers, is whether it is better to rent or to buy. This question will heavily depend on the market you’re looking to buy in, and will also be impacted by your financial situation. Everyone’s situation is different, and what may work for one individual or family may not be sound advice for another. Please carefully examine you or your family’s needs and financial situation when determining if home buying is for you.

Here are some factors you should consider when trying to answer this question:

Home Affordability and Prices

Do you know the market in your area or the market you’re looking to buy?  What is the median sale price for the type of home you’d like to purchase? What is the average? How much inventory is available?

Finding the answers to those questions will help you determine how likely it is for the homes you’re looking at to sell quickly (if there’s high demand and low inventory) or sell for more than the asking price.

It’s also important to become familiar with the market you’re trying to buy in. One market that’s close to your work may be much more expensive or have a much lower inventory than a neighboring market ten to fifteen minutes further from your workplace. If you find that the homes in the market you’re looking at are too expensive or just beyond your desired range, try looking slightly further out and seeing what a neighboring market may offer.

Debt to Income Ratio

The general advice is that your housing costs should be no greater than 30% of your monthly income. If you do the math and discover the house you think, you may be greater than 30% of your monthly budget, and then you may be looking at a home that is too expensive for your current budget.

The way to get around that is to increase how much you’re able to put down so that your mortgage amount and monthly payments are lower. However, if you look at multiple houses in the price range, you aim to be in and continue to find that your ratio is greater than 30%. Consider a cheaper home or home type, a different market (if possible), or waiting longer to buy to increase how much you can save for the down payment.

Home Maintenance

One of the greatest advantages of renting is that often the renter is not responsible for major maintenance on the home or apartment. If an appliance breaks down, the leasing office or manager is responsible for replacing it. If there’s a leak, a hole, or broken assets outside the residence, it is generally not the renter’s responsibility to make repairs.

In contrast, when you own a home, you are responsible for all maintenance and repairs. Often homeowners forget to include contingencies in their budgets, such as an unexpected appliance breakdown or a leaky pipe causing damage in the home. Such repairs can become expensive, and if you get too far behind in maintaining the home, your costs can balloon rapidly when you try to make repairs.

While lawn care may not cost you a lot of money, it does have some downsides in labor and time – unless you enjoy lawn maintenance, in which case, you would likely love it. But you will also have to consider lawn upkeep if you have one, or else risk annoying your neighbors or your homeowner’s association. 

The “Hidden Costs” of Owning

In addition to home maintenance, there are the “hidden costs” of ownership. These include the taxes and fees that come with buying the home as well as the long-term costs, such as property taxes, mortgage insurance, loan interest, home insurance, etc. These costs, if not budgeted for, may be something of a surprise to the inexperienced or uneducated home buyer and could heavily impact what that person or family can truly afford.

There are many rent v. buy calculators available online for free and may help you make a decision. We would recommend taking a full and honest look at your budget and then talking to a real estate or financial planning professional who could help you plan for homebuying if that is what you decide you’d like to do.