Owning a home is an important life goal for many Americans. Yet buying a home is not always the best financial decision for everyone. In some life situations, renting is a more prudent choice.
If you or your loved ones are contemplating the buy-or-rent decision, consider these questions to inform your next move.
1. How likely are you to stay in the community? Americans move far more frequently than they used to. If you won’t be staying put for long, renting is fiscally wise. Closing costs add up, whether you’re buying or selling, especially when you do so in quick succession. By contrast, renters typically only have to shell out a damage deposit, which generally can be recouped at the end of the rental agreement.
2. Are prices stable, falling or rising in your area? Look at the trends in home values in your area to assess whether buying a house is a good investment. Consider the reputation of local schools and hospitals, planned development and other factors that affect resale value.
3. Is all your rent going to waste? Rent paid to a landlord can seem like a throwaway expense, because renters gain no equity in the arrangement. However, if the roof over your head is adequate and the cost is less than what you could adequately find in the housing market, you can get ahead of the game by investing the difference. A handful of states offer some type of rental tax credits. If applicable, factor this tax savings into your number crunching.
4. Are you ready for the responsibilities of ownership? Some people love doing the work it takes to maintain a home. Others, not so much. It takes skills, willingness and time in your schedule to be your own handyman or gardener. But if you don’t care for the workload, or if your workday doesn’t permit much puttering around the house, you’ll need to set aside additional funds to hire someone to do the work or risk devaluation of your investment.
5. Will a home purchase leave you cash poor? Many Americans count their home equity as part of their retirement savings, yet the market crash of 2008 is one reminder that it’s risky to pour everything into your home and neglect other forms of saving. Economies can falter. Neighborhoods can change. Natural disasters can occur. And property taxes can go up, increasing the cost of home ownership.
Individual circumstances will dictate whether home ownership makes economic sense. A financial professional can help evaluate readiness to afford monthly mortgage payments and other expenses of home ownership, including the cost of home maintenance. Avoid rushing your decision to ensure your next step is a sound one.
