Whether to buy or rent is an intensely personal decision, dependent on your individual circumstances as much as the housing market. “If this is not the time for you, there will be a time in the future, there will be a property, there will be an appropriate mortgage product,” says Amy Tierce, a real estate blogger and a regional vice president at Wintrust Mortgage. “Do not try to time the market. Time your purchase around your life.”
Renting an apartment gives you a roof over your head, the freedom from maintenance costs and the flexibility to leave when you want. At the same time, it can feel like you’re throwing money away by not building equity in your home.
Buying, on the other hand, can be a wealth builder and offer you a place to call home that is yours to shape however you want. But that doesn’t mean buying is always the best choice.
Wondering whether it’s the right time for you to buy? Here are three things to consider:
Your housing market
Not all housing markets are the same. For one thing, you’ll get a lot more house for your money in Cleveland than in San Francisco, says Mark Ferguson, a realtor and creator of InvestFourMore.com.
In most parts of the country, it’s cheaper to buy a house than to rent, at least if you plan to spend five years or more in the area. Honolulu and San Jose, California, are the only two places where it’s generally cheaper to rent, according to Trulia. Much of California and the New York City area also come close to tipping in favor of renting, but Trulia finds buying is still a better option. (If you think owning property in the Big Apple seems like a pipe dream, CommmonBond, my employer, is hosting a free workshop on how to buy an apartment in New York City on Tuesday, May 10th.)
Run the numbers comparing your options in your area. Trulia provides a handy rent-or-buy calculator. Will buying get you a better value than renting? If so, buying could be the best option.
Your lifestyle
Renting makes it easy to move quickly and easily — whether it’s across the country for a dream job or just because you want to change neighborhoods.
Owning a home is a commitment, so you should be ready to put down roots if you want to buy. The transaction costs of buying and selling property are very high, (it can average about 10% of the sale price, according to Zillow) and they could wipe out any gains you made from appreciation if you don’t stay in the property long enough.
“If the perfect job comes up across the country will you be able to sell the home with ease? Are you in a position to rent your property and manage that relationship across the country?” Tierce says. “These are quality-of-life questions. If something requires you to move quickly, homeownership may not be right for you today.”
If you’re going to be in the area for the foreseeable future, your job is stable, and you’re ready to make a longer-term commitment, then it might be time to buy.
Your financial goals
Buying a home can be a wealth builder and a chance to accumulate equity, but it also introduces new expenses into your budget, such as taxes, maintenance, repair costs and insurance.
“Homeowner costs extend long after the initial purchase,” says Emily Holbrook, director of the young personal market at Northwestern Mutual, who helps millennials prepare for buying their first homes. “It’s necessary to have savings for unexpected expenses like a roof leak, new door or any other surprise payments that often come with homeownership.”
It can be difficult to manage those expenses while also trying to juggling other goals, such as paying down student loan debt, continuing your education or starting a family.
It’s not impossible to do those things and save money to buy a home, of course, but it makes it all the more critical that you have a solid budget in place, Holbrook says.
“I think saving a portion of your income should be the No. 1 goal before you buy,” Ferguson says.
The choice between buying a home and renting one is among the biggest financial decisions you’ll make. Knowing your financial goals, your lifestyle and your housing market can help you decide which choice is right for you.
