Finding a place to live can be a daunting task. Many things go through your head when you make this decision – the first of which is probably “Should I buy a house or should I rent it?” Before you take the leap, you must first decide which option is best for you.
First and foremost, think about your future. Where do you want to be in five years – financially and in general? What other financial or life goals do you have? These could include reducing your debt, paying for education, or moving to be closer to family. Where does homeownership rank among those goals? How might it affect your other plans?
The tricky dilemma is mortgage vs rent and which should a person choose. Take a look at the steps to buy a house and the costs associated with mortgages and rent. First, with a mortgage, you need a down payment. A down payment is the amount of money you must pay upfront to secure a mortgage on a home. Closing costs and commissions is another cost, which can spike from 7 percent to 15 percent, depending on the value of the home and the real estate agent handling the process. Finally, if the home you want to buy is highly sought after, you’ll need to shell out some earnest money to show the seller you’re serious about buying. This can range from 1 percent to 3 percent of the purchase price.
The costs associated with renting a home are far less extensive than with buying. First, there’s your rent payment itself, which will be dictated by your lease. You might also be required to put down a security deposit, which can either be a preset figure as determined by your landlord, or the equivalent of a month’s rent. Your security deposit protects your landlord in the event you damage your home beyond what’s considered normal wear and tear.
Clearly, the decision to rent versus buy is a big one, so yours will depend on a number of factors. If you have the funds available for a down payment, have good enough credit to get a favorable interest rate on a mortgage, and feel ready to take on the responsibility of owning, then buying is a great way to build equity, snag some potential tax breaks, and gain some stability. Similarly, if you’re set in your career and plan to be at your job for a long time, you’re less likely to want to move, in which case buying could make sense. The same applies if you have a family and want your kids to grow up in the same neighborhood throughout their childhood.