Buying or Renting? Which one should you go for

Have you been having a hard time lately regarding your purchase decision to buy or rent a house? Well, here a few factors you need to look at before making this tricky decision.

4 Factors to Consider:

        1.      Your Financial Condition:
        The absolute key factor you need to address first is your finances. These finances will include both your current status and your long-term status which you perceive. Buying a home is a major financial commitment. Not only should you feel financially prepared, but your lender needs to agree. That means meeting some criteria.
        Some of the factors which will govern your finances are as under, which need to be sorted out as your first priority:-

       a.     Down Payment:
           Most likely, you will need to take out a mortgage loan to afford the property you’re eyeing. Most conventional mortgage lenders require a 20% down payment. A down payment of this size shows lenders you’re committed to making your monthly mortgage payment. Ultimately, you’ll need to decide whether it’s more important to put down less money now and get into a home quicker or spend time-saving up a down payment that will allow you to save money in the long run. Either way, you should have that down payment saved up before you begin applying for mortgages.

            b.      Savings:
            Your down payment isn’t the only savings you need to have on hand. In addition to being on track with savings, you also should have plenty of emergency cash set aside.

      c.    Income:
             If you have gone for a loan, does your income allow you to meet the monthly installments along with your monthly expenses?

                   2.       Cost of Hiring vs Renting in Your Desired Area:

      Being financially capable of buying a home is a great start, but you should also double-check that it makes sense from a purely mathematical standpoint. There are plenty of emotional reasons to buy a house, which are certainly valid. But if you want to know that you’re making the best financial decision, it’s important to evaluate the cost of renting vs. buying in your neighborhood.

      3.      Your Life Style:
      Think about where you want to be five years from now. If you’re not sure, or you hope to be a digital nomad bouncing from city to city, homeownership is probably not for you. Buying a house requires a significant upfront investment, and you likely won’t break even on it for about five to seven years. Homeownership comes with lots of upkeep and periodic costs on top of your mortgage, insurance, and property taxes.

      4.      Risks:
     Finally, know that there are some risks to owning a home. You’ll want to think about these carefully and decide whether renting vs. buying makes more sense based on your risk tolerance. As a renter, there’s always a chance that your landlord could end your lease or evict you. In that case, you need to find a new apartment. But the most you may lose is a security deposit. On the other hand, if you aren’t able to make your mortgage payments, you could default on the loan and lose it to the bank. That’s significant money and future equity gone in a flash. There’s also the chance that your home’s value doesn’t increase as rapidly as you hoped, or it could even go down (hello, Great Recession). A house can be a great financial investment, but it isn’t always. You shouldn’t buy a house if your plan is to generate all of your wealth from it.

Buying vs Renting: Pros & Cons:

Clearly, there’s a lot to consider when making the decision to rent vs. buy. If you’re having a hard time weighing the pros and cons, here are the main points to consider.

          1.      Pros of Buying a Home:

a.       The value of your home could go up over time.

b.       Your payments go toward building equity.

c.        You can customize your living space the way you want.

d.       There are some tax benefits to owning.

e.        It’s a more permanent living arrangement.

         2.      Cons of Buying a Home:

a.       If your financial situation changes, you could lose your home.

a.       Swings in the economy can cause your home to lose value.

b.       You’re responsible for handling all the maintenance.

c.        There are additional costs of owning, such as home insurance, maintenance, property taxes, etc.

d.       You’re stuck in place for several years unless you are willing to lose money.

        3.      Pros of Renting:

a.       Monthly housing costs are fixed and predictable.

b.       It’s easier to pick up and move when you feel like it.

c.        You don’t have to spend money on the expenses associated with owning.

d.       You don’t have to save up thousands of dollars for a down payment or closing costs.

e.        The savings can be used for other goals, such as investing or paying off debt.

        4.      Cons of Renting

a.       Your rent money doesn’t go toward owning anything.

b.       You have limited control over how the property looks.

c.        Rent could increase in the future.

d.       The landlord could sell the property or decide to stop renting to you.

e.        There is less sense of stability or permanence.

Situations when you should buy	Situations when you should rent
You’re in strong financial standing	You want the freedom to move around
You want to build equity over time	You’d rather not handle home maintenance
You prefer to fully customize your living space	You like having fixed living costs
You plan to stick around for several years	You haven’t saved a down payment
You value security and stability	Your credit needs work
You’re in strong financial standing	You want the freedom to move around

 

 So Ultimately, What to Do?

When it comes to buying vs. renting, there’s really no one answer to which one is better. The decision is very personal and based on dozens of factors. The decision is dependent upon YOU & there is no winner out of the two.

Ultimately, you will have to think about what your goals are—not just for where you live, but your entire financial picture. Homeownership can give a great sense of control and security, but there is a massive financial investment required that might not be the best choice for you in the long run.

Renting might feel like “throwing money away,” but if you value flexibility, low maintenance living, and the ability to spend your money on other things like investing or travel, it could be the best choice for you. Again, it’s up to you to run the numbers and consider your ideal lifestyle.