It is an age-old debate: should you buy or rent a home? Lately, lower interest rates have made buying a much more attractive decision than renting. But the answer is not as straightforward as one may think. The sheer fact that there are hundreds of different loans to choose from and a variety of down payments that are acceptable for each program, one cannot statistically say that renting or buying is better in any given area without knowing the exact circumstances of the situation in order to come up with the right answer.
Factors to Consider
When you are determining whether you should rent for a few years and try to save up some money or just go ahead and buy, the following factors should be considered:
- Length of time that you plan to stay in the home – If you only plan on staying in the area for a few years, it might not make sense to put any type of investment into a home right now. The slow rate of growth in home prices has made it very difficult to gain any equity in a home. If you are only staying for a few years, you will likely break even or even lose money on the deal in the end.
- The amount of down payment you plan to use – If you only have a small percentage, such as 3 – 5 percent, to put down on the home, it might be best to wait until you have a larger down payment. The lower your down payment is the higher your rate and mortgage payment. This could make it more challenging for you to afford your bills month to month.
- The term that you can afford – The lower the term is of your mortgage, the more favorable it is for you to purchase it. If you can afford the 15-year payment on your mortgage, you will gain equity a lot faster because you are paying a lower amount of interest every month and hitting the principal amount rather hard.
- The amount of mortgage insurance that you will pay – Mortgage insurance is not something that you will ever see a return on; if you must pay PMI or FHA insurance, weigh your options to buy or rent to ensure that you are getting the better end of the deal with the insurance factored into the payment.
Other factors to consider include the price of the homes in the area that you live and the rate at which they are increasing. If you reside in an area that home prices are very high and the cost of living is above the standard, it might make more sense to rent rather than stretching your finances so thin that you must live paycheck to paycheck.
Think about the Long Term
It is very important for you to consider the long-term when thinking about whether buying a home is a good decision. If you find that you must stretch your loan term out to 30 years, yet you do not see yourself staying in that home for nearly that long, it might not make sense to buy. It is best to use common sense when considering the rent versus buy debate. There is not cut and dry answer and each situation will have a different answer. Purchasing real estate is a large investment, one that should be taken with seriousness. Renting is not always as beneficial as it seems, which is why it makes sense to calculate not only the payment and how it will affect your monthly finances, but also how it will affect your future.
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