You have probably heard the renting vs. buying debate more times than you can count at this point in your life. While there is undeniably some insight that can be gained from both sides of the argument, and it’s important to be educated on all of your different options, it really comes down to your specific life situation.
There is nothing inherently wrong with wanting to buy and own a home, just as there is nothing inherently wrong with choosing to rent later in life. Taking in all of the available information and, then, deciding what the right option for you is should be all that matters. Don’t let anyone else push their opinion on you just because something else makes more sense for their situation.
Here are some things to consider when determining if you should rent or buy:
Does it make sense for your budget?
This should go without saying, but you would be surprised at how many people overlook this important question: can you actually afford to purchase a home? In order to get an idea of the amount that would work within your budget, the rule of thumb is that the home shouldn’t cost more than 2.5 times your salary. There are 4 other financial factors that should be considered when calculating what you can afford:
- Your total take-home pay after taxes.
- All of your other debt, including credit cards, student loans, car payments, etc.
- Your additional financial responsibilities, such as children or retirement payments.
- What the down payment cost of your home would be.
What are the opportunity costs of renting vs. buying?
Opportunity costs are benefits that someone chooses to give up in place of another course of action. If you would choose to rent, you are giving up owning a home, which is an asset that you can call your own. If, instead, you decide to buy, you may be missing out on opportunity costs of putting that money into other investments that could earn you more money over time. Which is more important to you personally?
Would a home be your main investment?
There are many people that push homeownership because owning a home is an investment. But that is not entirely true for every person. Homes are not always appreciating assets and in some cases, it might make more sense for a person to rent and invest the money they would have spent on purchasing a home into something like bonds or stocks. If you have enough room in your budget to own a home while also placing your money in other resources to increase return, that would be the ideal scenario – but a home should never be your main investment.
Buying a home is a major life decision. Do your research with these considerations in mind before you decide if it’s right for you. But remember this: there is nothing wrong with choosing to extend the amount of time you rent. Nor is there anything wrong with wanting to purchase a home that will be yours for years to come. It all depends on what you are looking for and what makes sense for your future.