How to Decide Between Renting vs Buying
If you’re trying to decide whether to buy or rent a home, there’s no easy answer. Renting can feel like throwing money away. But buying might seem far out of reach. Living in camper vans is becoming more popular, but it isn’t for everyone!
Making a choice depends on a number of factors, including your financial situation, your long-term plans, and the current state of the housing market. More individual factors—such as where you live and where you’re at in your life’s journey—can further guide your rent or buy decision.
Here’s a closer look at some things you’ll need to consider before deciding on renting vs buying.
How to Decide Between Renting vs Buying
The state of your personal finances is the starting point for any major life decision, and deciding whether to buy or rent a home is no different. You’ve likely begun to budget to buy a home, so it’s time to take a deeper look. Ask yourself:
- Do you have a solid savings account?
- Do you have enough money for a down payment on a house?
- How’s your credit score?
- Can you afford the monthly mortgage payments, even if interest rates go up?
Your cumulative answer to these questions will help guide you to either rent or buy.
For example, imagine an individual who can afford to buy a home and cover the additional costs that arise with owning a home. If that individual has terrible credit, the impact of that on their mortgage payments could upend the logic of buying a home.
If you’re not in a good financial position, it may be better to rent until you’re able to buy. Extending your time as a renter until you’re able to comfortably afford to buy a home is far preferable to buying a home and finding that you can’t afford it, as the latter scenario can mean serious financial consequences.
Consider Long-Term Plans
Another thing to think about is your long-term plans. Are you planning on staying in the same area for several years? Or do you think you might move soon? If you’re not sure where you’ll be in the future, renting may give you more flexibility.
With renting, you can usually sign a lease for a set period of time—typically one year—and then renew it if you want to stay longer. With buying, it can be more difficult and expensive to sell your home if you need or want to move.
Consider the Housing Market
The current state of the housing market is also something to keep in mind when deciding whether to buy or rent. If prices are rising quickly, it may be a good time to buy so that you can lock in a low purchase price. However, if prices are stagnant or falling, it may be better to wait until they start rising again before buying.
In general, it’s usually easier and less expensive to find a place to rent than it is to buy a home. Housing inventory has been an increasingly important factor in the market, and it should be front and center in a decision to buy or rent.
For example, if there’s a large inventory of homes on the market, it could translate into either lower home prices or more negotiating power for buyers. If there’s a low inventory, prices could be high, and negotiating power lessened; this could tip the scale in favor of renting.
These are not set-in-stone guidelines, but they can help to guide you through your decision-making process.
Consider Current Situation
Where you live—or where you’re planning to live—has the potential to be one of the most important factors to consider in your decision to buy or rent a home.
In some cities and states, typically where the housing market is less competitive, it’s actually cheaper to buy a starter home than it is to rent. If this is the situation you find yourself in, then your biggest obstacle to buying a home will likely be saving for the downpayment.
In other cities and states, the opposite is true. Austin, TX, New York City, and San Diego are all examples of housing markets where it’s significantly cheaper to rent than it is to buy.
Summary: Buying vs Renting, Which is Best?
There’s no easy answer when it comes to deciding whether to buy or rent a home. It depends on your individual financial situation, your long-term plans, and the current state of the housing market.
It can be scary to jump into the deep end of home ownership. But it can also feel counterproductive to continue to rent a home. Carefully weigh all these factors before making what is typically one of the biggest life decisions. If logic guides your decision more than emotion does, you’ll be in the position to make the choice that’s best for you.
Do you need to sell your home before buying or renting your next one? While this adds another layer on top of the situation, you can still execute each step without an issue. Contact Brotherly Love Real Estate if you need to sell your house without a realtor. Our goal is to support you throughout your real estate journey in any way that we can.