In the past year, home prices dropped by .7 percent while rent rates increased by 5 percent. That means that in some situations, the immediate costs of a rent payment could be greater than a mortgage payment.
If you're debating between these two options, you don’t have to decide today if you will rent for the rest of your life or if you will own a home. What you can do is decide what's best for you right now in your current location, with your current job and in the current economy. As you consider your options, take some time to answer the following questions.
The question of whether to rent or own a home is complicated – so much so that many professional financial planners still disagree on the best choice, due to the turbulent housing market and the fluctuating economy. Whereas people once believed that owning a home was an indicator of success in life, that notion seems to have fallen by the wayside as people look to minimize financial risk
Can you handle the associated costs?
There is more to consider than a single monthly payment when making this decision. Before inquiring into the local housing market and researching opinions on national housing trends, consider what finances you have available – not just for rent or a mortgage – but for the many costs (like maintenance and utilities) that are associated with homeownership.
Take time to calculate the difference between renting and owning. When buying a home, your loan interest rate and repayment period will have a major impact on your finances.
How much does your income fluctuate?
Some incomes fluctuate dramatically from year to year, especially for people who work on commission, rely on bonuses or work a lot of overtime. Regardless of whether you’re considering renting or buying, never base your income expectations on variables like overtime pay.
If you’re unsure whether you can rely on the same – or better – income in the near future, you can take a conservative approach to homeownership and start saving money now, so you can make a larger down payment when you’re ready to buy.
How permanent is your job?
Consider the permanency of your job over the next five to seven years when deciding to rent or own. Just out of college, many students change jobs several times before finally settling permanently. But even with decades of employment with the same company under your belt, do you live in a community where you could find new work if your current employment changes?
Besides your job, what else influences your location?
Being married and having children plays a big role in where you live. When a spouse’s job demands relocation, you decide as a family whether to move. And if you have children or are considering starting a family soon, you’ll probably want to live in a good school district. Think long-term when deciding whether to rent or buy. Will the decision you make now still work for you in five years?
Can you afford a down payment?
With the many incentives now available to first-time homebuyers, putting the down payment on a house has become more affordable. Many states now offer workshops for new homebuyers, helping them learn about the local real estate market and providing information about financing, loans and mortgages. Experts still suggest you make a down payment of 15 to 20 percent of the purchase price when buying house, so think about how realistic that might be with your savings account. The lower your down payment is, the higher your monthly mortgage payments will be. If you can't afford to pay more than 5 percent up front, then chances aren't good that you will be able to keep up with high monthly payments, either.
Renting a home allows you to live comfortably without worrying about what your life might look like 5 or 10 years down the road. If, however, you have done your research and saved enough money for a good down payment, today's low house prices might mean that now is the time for you to buy.