Consider These Factors Before Deciding Whether to Rent or Buy

When you are deciding whether to rent or buy a house, keep in mind that you (and your family) alone will need to justify this decision to yourselves. This decision is not purely financial and is multifaceted. 

Many factors can impact your decision

Whether you rent or buy is affected by economic conditions at that particular time, the interest rates, the demand vs supply situation in that area, the desirability of the neighborhood, including crime rates, and other factors. 

There are also work-related factors. Let’s say you need to move into a particular area because you got reassigned there. If your work there will be short term, then that pretty much skews the decision in favor of rent. However, if you have a long-term assignment and you like the place so much that you are thinking of eventually settling down even if you have to find a new job, then ownership is in your cards — just maybe not during the first few months of your stay there.

If you are new to an area, you might be immediately impressed by the glitz and glamor that a neighborhood shows. But sometimes you will notice certain less desirable characteristics about a place after you have lived there for some time. That's another reason to rent first before buying in a new place.

If you are single and find yourself spending money on useless things, then buying a home can be a good way to build your equity, especially if you really want to live in that place. But if you prefer to invest in stocks, bonds and other assets, then saving money by renting and investing in assets beyond real estate could also be a smart decision, especially if you are unsure where you actually want to settle down.

Nonfinancial factors

There are times when buying a house in a particular location at a particular time in your life can be good for you, even if it's not great from a financial standpoint. For example, if your family is happy, you are making new friends and you have lots of new opportunities, then buying that house to make it a home is likely a good decision, especially if you will not have a hard time making the payments.

However, those same benefits can also accrue if you have found a great rental place and a good landlord, there's less of a guarantee that you can enjoy those benefits long term.

Financial considerations

Assume for a moment that both rental and ownership of the same house have the same tangible and intangible benefits, or that you are deciding to rent or buy one specific house so that the other variables are eliminated.

Even if you and your family like the house and the neighborhood and you want the benefits of ownership, you must consider the responsibilities of ownership. If you rent, you are basically just paying the rent and your consumed utilities. As an owner, though, you are responsible for things such as fire and flood insurance, property taxes, homeowners association dues (if you buy in an HOA) and the maintenance and capital expenditures to maintain and fix the house. 

However, that house is your castle. No one can kick you out of your it, as long as you pay the necessary expenses, such as your mortgage and property taxes. 

But if the neighborhood isn't for you and you want to move somewhere else, you'd need to sell the house. Depending on the demand and supply situation in that area, selling your house could be quick, or it could take a very long time.

As a renter, you have rights that are stipulated in the contract, but you are at the mercy of the landlord when it comes time to renew your rent or lease agreement. On the other hand, you aren't responsible for the insurance, real estate tax, homeowners dues (though that depends) and the maintenance and repair of the house. That is on the landlord. You are just using the property, and it is your responsibility to take care of the property outside of normal wear and tear.

Determine what you can afford

High interest rates mean that mortgages are currently a little above 7% for a fixed, 30-year loan. Of course, everyone wants to have the 3% mortgages that buyers before the pandemic were able to get, but we have to deal with the current reality. 

People have other bills to pay, including utilities, fuel, food and health insurance, and some have student loan debt. So if the monthly amortization increases by a few hundred dollars each month, that could impact your decision. If you are really tight with funds at this point in your life, it’s probably better to rent what you can afford and save up to buy a house at a later date. 

The choice is up to you

Buying or renting a home is a personal decision for you and your family. It can vary depending on the situation and your financial ability and is perhaps one of the most important decisions you will need to make for you and your family’s future and well-being.

Either decision you make will have tradeoffs. It really depends on what is important to you.

Think you're ready to purchase a home? Check out our down payment assistance programs.