Your friends are buying homes, your kids want a yard with a pool, and you want your own office space.
But is it time for you to buy a house?
Purchasing a home is one of the biggest decisions an adult will make in their life, and potentially one of the most stressful times.
So, you need to ask yourself if it’s right for you and your situation, or if renting is the better option.
Don’t rush to make a decision; instead weigh the options with careful consideration.
If you’ve ever asked yourself if it is better to rent or buy, the following guide will help lead you down the path that’s best for you.
How to Determine if You Should Rent or Buy a Home
How Long Do You Plan to Live in the Same Place?
This sounds like a simple question but certainly requires some attention.
Take a step back and analyze your current life situation.
Are you planning to establish roots in a community, or do you see yourself moving to another community, or state?
If your plans include living in the same home for at least five years, buying a home could be the better option.
So, if that’s the case, you should familiarize yourself with the different mortgage options available.
During your time as a homeowner, you can build equity, enjoy tax benefits, and put your personal touch on the home — or do a complete remodel.
It will also give you peace of mind knowing that as a homeowner, you are building a future for yourself and family — rather than essentially paying the landlord’s mortgage.
But, if you prefer living a more nomadic lifestyle, or if you haven’t found the perfect home, renting would be a better option.
You wouldn’t have to deal with the stress of selling before moving into a new home or apartment.
And, depending on the lease contract, repairs and necessary maintenance might be something you wouldn’t have to worry about.
Assess Your Financial Situation
Having a dream or a goal is important, but it’s vital that you are realistic about your current financial situation.
If you aren’t honest with yourself, you might not get the home you want, or you could get in over your head.
The most important aspect to keep in mind is your income. Whether you decide to rent or buy a house, it is never a good idea to live in excess of your means.
So, if you’re anticipating a big promotion at work and want to buy a house, you should wait for the pay increase before closing the deal on your dream home. It might be more than your current financial situation can handle, and that’s never an ideal situation.
Don’t feel pressured to make a decision you ultimately are not comfortable with; it could lead to a negative impact on your finances.
Estimate the Costs of Renting vs. Buying a House
In some situations, the cost of renting might be cheaper than the cost of buying a house because of the upfront costs associated with house closings.
Closing costs can include a down payment, closing fees, homeowner’s insurance, and potential maintenance issues found during the inspection. Quite a few issues found during a home inspection will be left to the homebuyers to fix or update.
It might not seem like it to begin with but owning a home can actually be cheaper in the long run compared to renting.
Owning a home allows you to build equity as you make payments towards the mortgage.
Equity is the difference between what is owed on the mortgage and what the home is currently worth. As payments are made towards the mortgage, the equity will rise.
Raising the equity on your home can lead to a lower monthly payment in the future.
As you begin estimating the costs of renting, determine if you can afford the additional expenses above the monthly cost of the home.
Additional expenses to keep in mind can include an application fee, renter’s insurance, utilities, first and last month’s rent, and a security deposit.
It is also possible that costs like having a pet or needing an appliance replaced is not covered under the monthly rent.
Weigh the Risks
As with anything in life, there are risks involved with both renting or buying a home.
Even though owning a home allows you to build equity and invest in your future, there are risks associated with being a homeowner.
Situations like relocating for a job might require you to sell your home and if there’s a downturn in the local housing market, you could lose money on the sale.
The costs of keeping a home in the best condition can add up quickly, especially when it comes time to fix or replace large-ticket items like a roof or heating system.
A single person who spends a significant amount of time away from home because of their job might also want to consider renting. The added stress of home maintenance might not be conducive to their lifestyle or work demands.
But a person or family looking to settle down in an area they love will enjoy taking risks and turning the house they bought into a home that’s perfect for them.
Renting might seem like a no-risk option, but that’s not always the case, especially if you are renting someone’s home.
Depending on what the lease agreement says, your landlord could ask you to vacate in 30 or 60 days, leaving you in a tough situation to find a new place to live.
Maintenance requests could be left up to you to handle, instead of the landlord. So, you could find yourself in a situation where you’re maintaining the landlord’s house, with almost no benefit for you.
If the landlord handles maintenance requests, you are at the mercy of their schedule.
And keep in mind that most rents increase each year, so a monthly cost that works for you now might not in a year.
Get Expert Financial Advice
The decision of renting or buying a house is never easy.
And looking at your finances to determine what you can actually afford can be just as difficult.
That’s why it’s important to work with someone you can trust.
For expert financial advice and to learn what mortgage options are available to you, let our professionals answer your questions and put your mind at ease.
Hudson River Community Credit Union financial experts won’t push you to overspend, instead we will help find an option that suits your needs and wants.
And if you aren’t ready to purchase a home yet, we can help create a plan to get you on the path to becoming a homeowner.
For more information, contact us today.