At one time, the answer to that question would have seemed like a “no-brainer.” Generations of Americans have grown up believing that home ownership was not only an integral part of the American Dream, but a sure route to building personal wealth and financial security.
But the housing crisis of the recession (which may or may not be over, depending on who you listen to) taught us that home ownership is not always right for everyone all the time.
Before you apply for a mortgage and start perusing real estate ads, you need to seriously consider which will be better for you: to rent or buy a house.
In order to answer that question, you have to ask yourself a few others, including:
Q. Do I already have too much debt?
If you already carry a lot of debt, adding a monthly mortgage payment could be the tipping point for your personal finances. How do you know if you have too much? You should be able to save at least 20 percent for a down payment on a house in five years or less. If your combined monthly payments make it difficult for you to do that, you would probably have difficulty carrying a mortgage payment as well.
And don’t assume a no-money-down scenario is your best option if you can’t afford a down payment. Fewer lenders are approving 100 percent financing. Plus, that kind of loan can leave you with huge payments, and years of paying interest without building equity.
Q. What’s the real cost difference between renting and buying?
The choice of whether to rent or buy a house doesn’t just come down to a mortgage versus a rent payment. Buying and maintaining a house involves many more costs, including utilities (which you may or may not already pay if you’re a renter), maintenance (usually a landlord’s responsibility in rental situations), taxes (the landlord’s responsibility for rental units) and insurance (homeowners insurance costs more than renter’s insurance). When you’re weighing the question of whether you should rent or buy a house, you need to factor in these additional costs.
Q. Will buying a house benefit me in the long run?
Again, thanks in large part to the recession, the answer to that question is no longer an unqualified “yes.” In some life situations buying a house could be more of a financial burden than a benefit in the long term. For example, if you have a job that you know will require relocation in a few years, it might make more sense to rent a home rather than try to sell one when the time comes to move. Or, if you’re retired, like to travel a lot, and spend little time at home, renting might be less hassle for you than owning and maintaining a home.