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? But determining which is the right path is more 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
If home prices are trending upward and there is high competition for homes, it may make more sense to rent until the market becomes more reasonable. Getting into a home that you cannot afford or that you paid too much for can have serious long time consequences.
Your current rental price and price per square foot
Everyone wants a reasonable monthly rent. A great rental with a fair monthly rent can allow you to save over a longer period of time to be able to put down a larger down payment when you finally decide to buy. A longer savings period can also help you to save for the extras, such as furniture and decor, that you’ll want to have to make your newly purchased home your own.
Long-term return on investment
When it comes to return on investment, there’s no doubt purchasing a home is the clear winner over renting. However, if purchasing a home directly is simply not an option, a rent-to-own option may be an excellent alternative. Renting-to-own can allow you to get into a home that you have the intent to buy, now, while you save up for the outright purchase of the home a few years down the road. Frequently, rent-to-own agreements still allow you to make improvements that add to the value of the home depending on what you’ve specifics you’ve worked out with the homeowner in the contract.
Current mortgage prices based on the amount of down payment
There’s nothing worse than getting into your dream home only to find that you actually couldn’t afford it and end up stuck with the stress and worry of making the monthly mortgage payment. Carefully run the numbers and be honest with what you can and cannot afford. Renting a home may make more sense for a while longer if it looks like you might be stretched too thin financially. When calculating costs, don’t forget to calculate potential PMI or other fees if you’re planning on putting less than 20% down.
Long-term career outlook
This is in area many potential buyers forget to consider. Unfortunately, while no one ever thinks they will lose their job, sudden and unexpected job loss is a common occurrence. Especially in the current COVID-19 times when so much is uncertain. Think about job opportunities for the area in which you would like to buy over the long term, and how much growth or lack thereof there is likely to be for your profession. If job opportunity is dwindling for your area, buying a home in another city may be a smart move for long term stability and home affordability. Consider renting a home first if you decide to move to another area to make sure it’s the right city and job market for you and your family.