1. BE SPECIFICThe more clearly you can describe the problem, the less likely the seller is to misunderstand and freak out. Refer to the inspection report, and remember that providing pictures is
It’s difficult to say whether renting or buying a home is a better decision. The answer depends on your situation and what factors matter most to you in the long run. That being said, here are some questions to consider when you make your decision to rent or buy.
Why are you buying a home?
The American Dream has always been to own a home; and in most cases the benefits of owning a home far outweigh any possible negatives. Determining if you can afford a home has become infinitely
easier thanks to the internet. Tools like mortgage calculators and online real estate listings give potential home owners valuable information to help them decide if and when they are ready to buy a home. Because everyone’s circumstances are so different, be sure to ask important questions like, “Why am I buying a home?” Whether the reason is financial (taxes, investment), or because it just makes sense to own rather than rent; be sure to consider all of the questions raised in this article prior to moving forward with a home purchase.
How long will you be in the home?
If you know you will be staying in the general area for a long time, the better decision is usually buying. Buying will allow you to save more money than renting will. However, houses don’t come cheap. You have to consider whether you can afford to support your lifestyle after purchasing a house– you don’t want to be “house poor”. If you intend to live in your home for a short term you run the risk of losing money by owning a home, especially if the property does not increase in value over the short term. This is not true for everyone– especially for those who buy and sell property as a business. However, these experts know the risks involved and can likely survive if there is little or no profit from the sale of a property.
The charts below show the financial effects of owning a home over a short or long term: after year 1 of renting for $1,300 a month, a renter would roughly have a net gain of $23,000 over a home buyer who buys a home worth about $185,000. These values are based on national averages for both renting and buying.
After year 2, that the home buyer will start to see his or her gains from buying as opposed to renting.
Overall, a home buyer would gain roughly $868,000 over the span of 30 years.
How much does housing cost in your area?
Some people rent because they don’t think they can afford a home or median home prices in their desired area are too high. Houses are not cheap, but the benefit you get from owning a home versus paying to live in someone else’s home may be greater than you think. Try this simple buy versus rent calculator to help you determine if owning a home is right for you Rent vs. Buy Calculator . The key is to be honest about your finances to help you get a better idea of the costs associated with owning a home beforehand.
What are the opportunity costs of buying?
In case you’re not familiar with opportunity costs: an opportunity cost is the loss of potential gains from alternatives when you make a decision. For example, if you decide to buy a home, you are choosing to pay for the value of the home, the mortgage interest, closing costs, taxes and insurance. What could you buy instead? What long term value could you gain if you invested that money in the stock market or a “high interest” savings account? Does the potential value of not buying a home mean more to you than the value of buying?
What can you actually afford?
Consider your basic lifestyle needs, your budget, and your location when deciding to buy or rent. For example: Let’s say you live in Palo Alto, CA where homes cost millions of dollars. If the home you want to buy in Palo Alto costs 5 million a 10% down payment would cost you $500K and you would have to earn enough to pay a $10K per month mortgage for the next 30 years. That’s not including taxes, insurance, maintenance costs and/or HOA fees. What about a similar home in Salem, OR? You’ll need $25-30K for a down payment and closer to $800 per month in mortgage. Consider your salary, your savings, your budget, your location, and your commute to and from work before you make a decide where or when to buy a home.
A basic rule of thumb: your home shouldn’t cost more than 2.5 times your annual salary. Taking it a step further: consider your take-home pay, other debts and monthly payments, other financial obligations, and your down payment amount. Then use a mortgage calculator to see how much you can afford including the above considerations. Make sure you leave a cushion between your income and total monthly expenses.
What are your financial responsibilities?
Do you have children? Do you have any debts? Where do you eventually want to retire? When you’re debating between buying versus renting, make sure you keep all your obligations in mind. That includes paying for necessities like: food and utilities, travel or vacation and retirement funds, saving money for your children’s college funds, paying off debt, etc.
So are you going to buy or rent? It’s true that renting allows you more flexibility. If you’re in a period of uncertainty about your career or income, renting may be the better option. It’s also a good idea if you have bad credit. Creating a history of on-time rental payments may help to raise your credit score, which would help you get a better interest rate on your mortgage. There is a downside to this: with a rental you have no control over fluctuating rent prices, and there is no return on investment when you move out. Buying doesn’t offer the same flexibility in the face of uncertainty; but you can build equity in your home, receive tax deductions from the interest payments on your mortgage, and have complete creative control of your home (such as, your maintenance choices, remodeling and renovation ideas). We hope this article has given you some good food for thought to help you decide if you want to buy or rent. In most cases, buying is a better financial decision versus renting.