How to Know If You Should Buy a Home or Continue Renting
While owning a home and a plot of land was once part of the 'American Dream' for many people, the times have shifted. The global financial crisis which resulted in a massive shift in the housing market has resulted in more US households renting today than at any point in the last 50 years. There are pros and cons for renting and buying a home. This article takes a look at some factors you can consider when making that decision.
Examine your finances
A critical step when thinking about renting vs buying is the state of your finances. Buying a home requires considerable financial backing, whether from a bank or other financial institution. When applying for a bank loan for a house, your income, credit score and assets/liabilities are all taken into account. Buying also involves substantial upfront costs such as the down payment, realtor fees, lawyers fees and the like. If you don't think you can afford the costs, then renting may be the best option until you are in a financial position to consider buying.
Length of stay
The length of time you plan to stay in a particular area is a key consideration when thinking about renting vs buying. If you are planning to stay long-term, then it may be worth considering buying a home. For example, you may want to raise a family or settle down. If you do not have plans to commit long-term to a particular neighborhood, then renting may be more beneficial, as you can leave once the lease has finished.
Advantages of renting
There are also several advantages to renting a home. As discussed above, this includes flexibility in situations where you are required to move, such as job relocation or family circumstances. Renting does not require a long-term commitment from a tenant.
The only insurance required by tenants is to cover the contents of the home, whereas a homeowner has to take insurance on the physical building, maintenance, mortgage repayment insurance etc.
Advantages of buying
Owning a home has several advantages as well. Paying off a mortgage means that you are increasing the amount you own of the property (your equity), which can be useful as collateral for future investments. The value of the home may also increase over time, which can net you a profit if you decide to sell.
You have control over the property since you are title owner. For example, you can do renovations or additions without many limitations (subject to local municipal rules).
Whatever your housing situation, it is always important to consider all aspects of a financial decision of this magnitude. If in doubt, you should consider speaking with a friend, family member, or housing professional who will be able to point you in the right direction.