A large part of the American Dream is becoming a homeowner. Is it worth it though? Should everyone buy their own home or should they continue renting?
There really isn’t a cut and dry answer to this question. It really depends on your situation. Below we look at the different aspects of buying and renting to help you determine which might be right for you.
When Buying a Home Makes Sense
Buying a home isn’t always a bad decision. It will likely be one of the largest investments you make in your lifetime. If you are in it for the long haul, you could make a decent return on your investment. If you are unsure about your next step, though, it might not make much financial sense. Below are the reasons it might make sense to buy rather than rent:
- You plan to stay put in this home unless something drastic changes
- You are either buying the home as a single-person or you are already married (you aren’t going to buy the home with someone you are not married to)
- You have enough money saved up to handle paying for maintenance and repairs (assume around 1% of the home’s value per year)
- You have other investments, real estate isn’t your only investment
- You have enough saved to put 20% down
- You make enough money that your housing debt ratio doesn’t exceed 28%
- You have a stable job that isn’t likely to relocate you
When Renting a Home Makes Sense
Sometimes, renting just makes more sense than buying a home. Even though it’s not the ‘American Dream,’ and many people think paying rent is like throwing money out the window, there are times that it makes sense, including:
- Real estate would be your only investment (you’d be putting all eggs in one basket)
- You don’t have 20% to put down on a home
- You have a job that isn’t stable or doesn’t pay you consistently
- You have a high chance of being relocated
- You don’t plan to stay put for very long
- Your housing debt ratio would exceed 28% of your gross monthly income
- You don’t have enough money saved for yearly maintenance and repairs
- You live with someone you that is not your spouse
Making the Right Decision
As you can see, there are many pros and cons to both buying and renting. What works for you really depends on your circumstances. If you are the type of person that prefers to move often, renting is the better option. If, however, you plan to stay put and everything else in your life is fairly stable (including your job), buying a home may work to your benefit.
You should weigh the pros and cons of each option as it pertains to your situation. Don’t focus only on your future plans, but also on your financial status. Is your job secure? Do you have other investments? Diversifying your money is the best way to ensure a solid return on your investments and stable retirement years. The last thing you want is to retire with a hefty mortgage and be forced to work when you should be enjoying your golden years.
If you decide that buying a home is the right choice, make sure you shop around for a mortgage. There are many mortgage programs, interest rates, and closing costs available to each person. See which program suits your needs the most and go from there. Doing your homework and really evaluating the situation will ensure that you make the decision that is right for you.