Should I Buy a House or Keep Renting?

“Buying a house is always better than renting.” Renting is throwing money down the drain.” “You’re just building equity for someone else.”

Heard these lines before? They should be familiar to anyone who’s currently renting — and has been urged to jump into homeownership as quickly as possible. But are these statements actually true? Do you really need to buy a house, or is renting the right way to go?

The honest answer: It depends.

So much depends on your unique situation, your financial life, and your other goals. Here’s how to determine the right answer for you in the rent-or-own debate

You Should Keep Renting If You Don’t Want to Buy!

A better question to ask than “should I buy a home or keep renting?” is whether you even want to buy a house or not.

Many people face enormous social pressure to buy a house, especially if you’re getting married or starting your family. We think it’s what we “should” do, or it’s just what you do next once you hit those other life milestones.

But there’s nothing wrong with renting, especially if you like it. There are countless reasons why even Millennials prefer to rent versus buy. Here are just a few:

You maintain flexibility. You aren’t tied to one location through a house you’d need to sell for a certain price before you could move to follow a career, a family member, or just a desire for a change.
You give yourself a lot more free time. You don’t have the responsibilities that come with owning — and maintaining — your own property. At a time in your life when you’re very likely busy with friends, family, and work, not spending your weekends toiling away on your house could provide a massive value to you.
You can use your money for other things. A down payment and all the costs associated with a home can eat through much of your cash savings. Renting allows you to leverage your money in a different way, and could allow you to save and invest more each month to reach goals that are a higher priority to you right now.

Determine What is Really More Cost-Effective

You might enjoy the benefits of renting, but still wonder if it’s the financially smart thing to do. After all, that idea that buying is always better (or cheaper) than renting is a powerful one!

Sometimes, it does make more financial sense to buy your own home than to rent someone else’s.

But that’s not always the case, especially in highly-competitive seller’s markets where all-cash offers are the norm, or when homes go for hundreds of thousands of dollars over the list price due to bidding wars.

You need to compare apples to apples to get an answer in the rent versus buy debate when it comes to which one is most cost-effective. That means doing the math with your numbers.

You need to look at your rent and current expenses and compare those to the cost of owning a home in the area you want to buy. That can get complicated, but a comprehensive financial planner can help you run the analysis. You can also use tools like the New York Times’ Rent Vs. Buy Calculator.

It might be easier to make a decision once you can see what truly is better for your financial situation, renting or buying.

What Millennials Need to Think About Before You Buy a House

That being said, maybe you do want to buy a home — even if it’s a little more expensive than renting. If continuing to rent is not something you’re interested in, that’s okay, too!

Again, the first step in deciding what’s right for you is being honest about what you actually want. And it’s perfectly fine to have a goal to buy a home.

If that’s your aim, then your next step is to determine if your finances are ready. How many of these items can you check off as true to you right now?

I track my spending and keep a budget each month.
I rarely spend more than I make.
I’m on track with my retirement savings and can continue to contribute to my retirement if I bought a house.
I have no credit card or other “bad” debts — or, if I do, I have a plan to repay it and the monthly payments on the balances take up 10 percent or less of my available income each month.
I have a reliable, steady income that is consistent and will not change in the next 12 months. I’m not likely to lose my job.
I have savings available for a down payment that are separate from my retirement savings and emergency savings.
I want to stay in the same place for the next 5 to 7 years and my current work supports that goal (in other words, I’m unlikely to relocate.)
I can pay for a mortgage without maxing out my budget, and the amount of house I want to buy would leave me with a mortgage payment I can afford at the same time I can contribute to other savings goals (like retirement.)

If you don’t check off most of these boxes, you may need to spend more time getting your financial ducks in a row before throwing the added complication of a mortgage into your money picture.

Remember, the most expensive part of your rent will always be your rent. Yes, it can go up — but there will never be a monthly surprise that throws your budget for a loop. If rent soars too high, you can exercise the option to move.

The cheapest part of buying your home, on the other hand, is your mortgage. Your monthly principal and interest payment is the least you’ll ever pay on a monthly basis.

As a homeowner, you’re responsible for property taxes, insurance, repairs, upgrades, and regular maintenance — which makes it highly likely your actual mortgage is the minimum you’ll pay for your home each month.

Again, buying a home is entirely possible, but you must make sure your finances are in good health and you have a solid plan to follow before you take the leap to buy a home. And whether you choose to rent for life or buy early on, you should make that choice based on your own personal, professional, and financial situation.

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