When looking for a new place to live, the first question you should ask yourself “Do I want to rent or buy?”. Renting vs. buying is a personal decision. It largely depends on your specific circumstances at that stage of your life.
If you are a young person who just got your degree and new job offer, you might want to rent first. If you are a young professional with few years of working experience under your belt, you might want to keep renting too. If you get a new job offer on the other side of the country, it is so much easier to move from the rental unit.
You have a psychological freedom when you rent, because your rent is a 12 month commitment to live at that place. Sometimes the rent is on a month-to-month, what gives your even more freedom. You don’t feel trapped in a specific location and have a freedom to move.
For a person with an established career, who has a family, it might be better to own. Once you want to settle down in one area and establish your roots there, it is better to own. You can look at the house like a savings account when money goes in every month, the house appreciates and you get the money back once you sell it. Home equity can be borrowed against while you own the particular home.
But don’t forget that with home ownership you are responsible for routine home maintenance, repairs and fixing the issues, so the money you spend doing it can quickly add up. But again- there is no more mortgage payments, when the mortgage is finally paid of, and the home finally becomes your property.
Here are some basic questions to consider when thinking about buying a home:
- How good is your credit? You don’t have to have a perfect credit score, but the higher the score, the more options you have.
- How long do you plan to stay there? If you are planing on staying for just a couple of years, renting might be a better option.
- How much home can you afford? If you can not afford a home big enough to fit your family in a few years, it might be better to rent while you save a more money.
- Ho much money have you saved? If you don’t have enough money saved for the down payment, and have an extra emergency fund, then you better rent.
There is a lot more to the rent vs buy decision than money amount each month. It is not just about using a financial calculator to see which option costs you more money. You have to look at your life circumstances at the moment and decide what is the best thing for you.