November 16, 2020
By Rahul Iyer
Deciding whether you should buy or rent your next home is a big decision. Buying is a big commitment, but renting can feel like a waste of money. The right answer depends on your circumstances.
Ask yourself the following questions to decide.
Will you live in the home for a long time or is it temporary? If it’s temporary, paying the closing costs that go along with buying a home may not be worth it. Selling in a few years means your home may not appreciate enough to make back the closing costs, which can be as much as 2% - 5% of the loan amount.
Now, if you’ll live in the home for a long time, you’ll likely make back the closing costs and then some. Buying when you’ll live in the home for a long time makes more sense since you’ll earn the equity (profit) in the home.
Not only do you need a down payment to buy a home, but you need the financial capacity to afford the home’s maintenance, repairs, and regular upkeep. Think about utilities, taxes, insurance, and anything that could go wrong with the home.
If you’ll borrow 100% of the home’s sales price, plus struggle to keep up with the payments it may make more sense to rent. You won’t start homeownership with any equity and if the upkeep and taxes will make homeownership unaffordable, renting will ensure financial peace.
Some people love the freedom of renting. They don’t care that they won’t earn equity in the home. They’d rather have the ability to move after their lease expires, annually or even every couple of years.
Many people feel like they are a part of the community more when they buy a home. There is something about buying into a neighborhood that makes you feel more vested. You’re more likely to get to know your neighbors, join neighborhood groups, and even do community service. When you rent, you aren’t setting down roots, so it’s harder to feel settled.
Many people wonder, which is better renting or buying a home? The answer is that it depends. Some people only buy – they want that sense of ownership. Others rent because they don’t want the responsibility.
The right answer depends on your needs and capabilities. Can you afford to buy or will it stress you out financially? Do you want the responsibility of maintenance and repairs or would you rather someone else handled them? Would you like to earn equity and use it toward your retirement or even to leave for your heirs or would your rather invest your money in other ways – leaving money rather than a physical asset for your loved ones?
Ask yourself these questions as you explore whether renting or buying is better for you, whether this is your first home or a subsequent home.