|Renting vs. Buying, Which Option is Better for You?|
Buying a house can be the most rewarding purchase you ever make. However depending on your current circumstance this may not be your best option. To help make an educated decision, try to answer the following questions first:
1. Do you really want to own your home?
2. How often do you expect to move in the future?
3. How stable is your employment situation?
4. Can you afford to make the monthly payments?
How much rent are you paying now? What is the maximum amount you are willing to pay?
If you buy a home, it is important to have some money set aside for "emergencies". You may not be able to save as much money as a homeowner as you did when you were renting, but it is important that you leave some room in your budget. If you have to stretch your budget too far, you should definitely reconsider your home purchase.
5. Do the math
From a purely financial standpoint, whether you should rent or buy comes down to your monthly budget and the cost of borrowing. If you have the down payment and interest rates are 5% or lower, it makes very little difference whether you rent or buy. At interest rates above 8%, buying will cost you 20% or more than renting.
Although it might seem that you will be spending more money on buying a house than renting, you need to consider your options and priorities. There are many more advantages of purchasing a home over renting.
Assuming that you can afford the increased costs of owning your home, the question of what's better, renting or buying a house, becomes one of personal preference. There is a certain satisfaction in owning your own home, but only if it is important to you.
If you are only staying somewhere for short period of time (less than five years), renting is almost always better; the transaction costs of buying and selling houses will definitely make it less expensive just to rent.
For longer periods, buying a house is usually better. Although if you have the discipline to invest the difference between your rent and your potential mortgage and other buying costs in a reasonably high yielding investment, renting might be better. But that’s if you carefully figure out the difference and diligently invest that difference. If you can’t do that then buying is probably the better choice.
Buying a house is usually a sound long term investment as it helps you build equity vs. throwing your hard-earned money away as rent real estate generally appreciates; a house bought today is worth more a few years down the road.
Renting vs. Buying, Which Option is Better for You?
Blog by Art Lee | June 12th, 2010