Renting vs. Buying: What to Ask Yourself

Whether you’re moving out of mom and dad’s basement or packing up your family to move to a bigger home, the same question remains: should I buy or rent my next home? While homeownership is the assumed approach, more and more people are figuring out that buying might not be the way to go. Ask yourself the following questions to see what’s best for you. 
Where do I want to live?
The housing market varies in different locations, which means buying and renting costs vary. Once you decide on the area you’re moving to and the type of house you’re looking for, do your research to see what you would have to spend to get what you want. Use an online calculator to estimate your monthly mortgage, interest rate, taxes, etc. Then, look for similar homes in the area that are up for rent and compare the monthly costs – don’t forget to take renters’ insurance into account. If you can rent a home for less than the monthly mortgage payment of that similar home, renting might be better for you based on that area. Hate the feeling of not having a house as an investment? Invest the difference and you may be able to earn a better return in the long-term.
How long do I plan to stay?
If you plan on moving within the next five years, taking on the high transaction costs of purchasing a home isn’t worth it and renting is the way to go. If you plan to stay in the house for five years or more, buying might be best. Within this time frame, you are more likely to gain your money back and generate a return on your investment.
What is my financial situation?
This is the biggest determining factor when deciding to buy or rent. A general rule of thumb highly recommends saving enough money for a 20 percent down payment toward the home you wish to buy. By doing so, you avoid mortgage insurance and in most cases pay a lower interest rate. After your down payment, you need enough money to cover your closing costs, mortgage and other monthly costs that come with owning a home. Leave cushion room between your income and expenses, and ensure you have a healthy savings account in case of emergencies. Of course, if your funds are limited and you don’t have the money for a down payment, renting is best for you.