Thursday, November 29, 2012

How to Decide Whether to Rent or Buy

Many people in today’s economy face the question of whether they should rent or buy their home. The housing market is still considered by many to be a buyer’s market, which is great if you want to purchase your home. However, you need to think long-term when considering whether buying or renting makes more sense. That buyer’s market that would work in your favor today would work against you if you needed to sell your home in a year.

When determining whether to rent or buy, consider the following factors:

Planting roots

One of the most important questions you need to ask yourself is: “Do I plan on staying here for a long time?" If you are going to move in the next five to seven years, then you should probably just rent your home because you most likely won’t be able to pay off your mortgage or have monthly payments low enough to make buying a home worth it. Not to mention, the quick turnaround means that you have to sell your home in what may still be a buyer’s market.

Long-term savings

For some, purchasing a house just makes more sense financially. If you are committed to living in one spot for a while and building equity in your home, you’re actually making a sound investment in buying a home. Renters don’t enjoy that advantage. Use financial tools that can help you estimate how much each option would cost you and what would the financial benefits be of one option over the other.

Consider your debt

As you try and make the financially responsible decision of buying or renting your home, you need to consider all of your debt. Do you have a lot of credit card debt? Are you still paying off student loans? Maybe you just recently purchased a brand new car. All of these affect the types of loans you can get from lenders when purchasing a home. If you have a lot of debt, then your interest rate for your mortgage is probably going to be high, which can cause you to pay much more for your home in the long run. However, when you rent a home, your debt has little to no effect on your monthly rent payments. You just have to decide if saving a little money while renting make the most sense.

The process

When you purchase a home there are several steps that need to be completed before you can actually move in. However, when renting your home, you simply need to fill out an application and wait for approval. If the process of buying a home is enough to sway you away, then renting is probably your best option. However, if you have done the research and are willing to go through the processes, then by all means go for it!
Deciding whether to rent or buy can be difficult. There are certainly pros and cons of both choices, but ultimately it’s up to you decide which is choice is best. Just remember to consider all of your financial obligations and whether your choice is a sound investment before becoming a homeowner.

Matt Herndon loves spending as much time as possible with his wife and three kids. When he’s not rushing from football games to riding lessons and volleyball games, he’s busy checking things off his honey-do list.