So you’re on the hunt for a new house or apartment. Congratulations! You may know how many bedrooms you want and exactly how you’ll decorate the living room. But should you rent or buy your home?
Both options have potential benefits and drawbacks. Ask yourself these five questions to decide whether to rent or buy a home.
1. Can I Afford the Down Payment and Closing Costs Associated with Buying a Home?
When you’re renting a home, the upfront costs will likely include a deposit, and first and last month’s rent. If you buy a home, you’ll likely need to shell out a down payment, which is typically between 5 percent and 20 percent of the purchase price, plus closing costs, which can run from 3 percent to 6 percent or more of the purchase price.
Consider whether you have enough savings to cover the upfront costs of home buying without breaking the bank. You also may need to budget for additional home-buying expenses such as a real estate appraisal, inspections, and title insurance.
2. How Will My Credit Impact This Decision?
Your credit plays an important role in your ability to qualify for a mortgage, so you should know your credit history before you house hunt. You can receive a free copy of your credit report once a year from each of the three credit reporting companies: Equifax, Experian, and TransUnion.
If your credit history isn’t as strong or established as you’d like, you may want to spend some time working to build it before applying for a mortgage. That might include paying your bills on time and paying down your credit card balances.
3. How Long Do I Plan to Stay in the Home?
Because buying and selling a house requires money, time, and energy, you might consider buying a home if you expect to stay in the home for at least five years. If you’re not sure exactly where you want to live, for instance, or if you foresee a job transfer in the near future, renting may be a better option.
4. Am I Willing and Able to Do Routine Maintenance and Repairs?
If you rent, your landlord may be responsible for fixing an appliance that goes on the blink. But when you own your home, that task likely falls on you. If you’d prefer not to deal with those kinds of issues, renting a home may be a better fit.
5. Have I Considered Other Monthly Expenses Associated with Renting or Buying a Home?
The mortgage payment is the largest expense in homeownership, but there are other costs to factor into the budget too, like homeowners insurance, utilities, and taxes. If you rent, you might pay extra fees for parking, pets, and utilities, in addition to your monthly rent payment. Learn more about other costs of renting and buying a home.
The good news is that for most consumers, home buying comes with tax benefits, which may help offset some of the other costs. Homeowners may also have an advantage of building up equity each month.
Perform your own calculation to compare the cost of renting versus buying a home. If you think you might be ready to buy your first home, check out our program for first-time homebuyers.
