Renting versus buying a home is a common question asked by many. There are no right or wrong questions to ask. The most important factor to consider is one’s situation. Each person has their own pros and cons as there are several factors that can influence the final decision. Let’s take a look at 6 considerations when choosing to rent or buy a home:
Consideration 1: Situation
How long a person plans on living in one place will influence their choice of renting or buying. Renting may be more beneficial for a student that wants to be in closer proximity to the school. However, for a couple or individual that has the intent of raising a family or staying in the same home long term, buying is the better choice.
Consideration 2: Time frame
Generally speaking, if the case is living at a home short term renting is more practical. On the other hand, staying at a home long term, buying would be more favorable.
Consideration 3: Income
Income determines how much mortgage or rent a person can afford. The rule of thumb for how much mortgage an individual can afford is 3 (in some cases up to 5) times their annual gross income.
Consideration 4: Stability
Having a stable full-time job for at least 1 to 2 years will show lenders (the bank) that the buyer possesses stability. As a result, there is a better chance of being approved when applying for a mortgage. There is the added benefit of having peace of mind from knowing a steady income will allow mortgage or rent payments to be made.
Consideration 5: Renting
When the funds that are being brought in are not sufficient, renting may be the smarter choice since it’s cheaper. There are fewer responsibilities in terms of maintenance. If there’s a problem with the electricity or plumbing, the responsibility falls on someone else and forking up extra cash is not necessary. Additionally, one can move from one home to another when the lease is up or stay there as long as needed. On the other hand, when renting a home, all of the money that’s going into rent payments is basically gone. That money will never be seen again as it is now in the landlords pocket.
Consideration 6: Buying
Buying a home is probably the biggest investment that someone will ever make. People rarely pay for a home in full, so people take a mortgage from the bank. Even though this means paying a lot of money towards interest to the bank, the value of the home will most likely increase in value. It will increase enough that it would compensate for the interest paid or perhaps, even more, depending on the market. There’s no better feeling than to have a place to call home. On the other hand, damages or repairs to a home will be costly. Maintaining a home such as cutting the grass, hiring a snow removal service, and condo fees (if applicable) will also be expensive. There is also the added expense of paying a one-time welcome tax fee, annual taxes, and home insurance.
So the question, “is it better to rent or buy a home?” really depends on the individual’s situation, time frame, income, and stability. The choice of buying and investing money into a home or opting for the more convenient choice is up to each person.