The discussion around whether or not it is better to rent a home or buy a home is one that is brought up frequently. The argument stays heated as markets fluctuate and answers may differ. The most critical factor in past discussions has always been highly dependant on one fact: Is your potential mortgage payment less than your rent payment. We would like to approach this debate from a different angle because we believe there is more to weigh than just determining which may be the cheaper option.
When deciding whether to rent or buy a home, consider the following before making a decision:
- The current market (are home prices trending upward, or downward)
- Your current rental price and price per square foot.
- Long-term return on investment
- Current mortgage prices based on the amount of down payment you can feasibly make (don’t forget to calculate potential PMI or other fees if less than 20% down)
- How long you plan to live in the area and/or home.
- Long-term career outlook.
Let’s focus on one of the important factors, your return on investment. When renting, regardless of whether the rent is cheaper than a mortgage, you will be paying into someone else’s nest egg. You do not earn equity, improve your credit history, or get any other long-term value out of renting.
Buying, however, provides more of an investment, because you will earn equity in the home and can later sell the home or take out equity loans. However, there is a reason the saying “house poor” exists. People tend to look at this factor alone and purchase a home without considering how it may affect their long-term financial situation. Buying a house and earning equity is great, but not at the expense of your general financial and personal well-being.
Now let’s consider a different option, rent-to-own. In this option, you are still considered a “renter” but your payments are actually going toward some real-world value for you. You can rent for a specified period of time, while part of that rent is actually going toward the purchase price of the home. This allows you to focus on improving important areas of your personal life, such as your credit rating, building up a savings or more. Improving your credit rating, and becoming eligible for lower interest loans due to this, will provide a lot of value in the long-run.
Your final decision will be based on your unique situation, but we recommend avoiding arguments around rent-vs-buy based solely on current rent or mortgage prices. Consider your long-term goals and think about how some non-traditional options such as rent-to-own may play into your overall financial planning and homeownership goals.
We wish you the best of luck!