If you’ve opened up the Zillow app even once in the past six months, you know there’s no denying it: the housing market is booming. And, with the national homeownership rate of 64% only expected to rise by the end of 2022, you may be experiencing homeowner FOMO; a fear that you’re missing out if you’re not on the house-hunt alongside everyone else. And we couldn’t really blame you. With rising interest rates and home prices, it sort of does feel like a “now or never” option.
Owning a home certainly has its perks – from being able to customize the interior and exterior of the home to your desired aesthetic, to the simple freedom of enjoying your own space. But, lifestyle perks aside, buying a home isn’t always the best financial move, especially if the sole reason is to ‘keep up with the Jones.’
So when does it truly make sense to own, and when are you better off renting? Read on as the Finance Opinion Team helps you understand the financial benefits of each to determine the best move (no pun intended) for you.
Factors to Consider First
Before determining whether or not you should rent or buy a home, keep in mind that certain factors can change the ultimate outcome. First, consider the location in which you’re living. Some areas have higher prices for ownership than others, meaning if you live in an area like San Francisco, for example, you could save thousands of dollars each year by renting.
You’ll also need to decide what’s most important to you, personally, when it comes to your living space. Do you need stability? If so, renting may not be the best option, given a landlord can end your lease or sell the home you’re living in at any given moment.
Additionally, if financial predictability is important to you, a fixed-rate mortgage payment, though a bit higher than a typical monthly rent payment, could be a better option, since the monthly payment doesn’t fluctuate over time.
When to Stick with Renting…
The biggest barrier to entering homeownership for most is the large upfront cost of purchasing a home – ie: the down payment. Along with an average down payment cost of 20%, you’ll also need to ensure you have enough cash to cover closing costs and other fees, which typically equate to 3% – 5% of your home loan.
If putting up your savings into a home purchase will leave your emergency savings fund empty and leave you cash-strapped (ie: “house poor”), you may want to consider renting – which is known for lower move-in costs – as you build up additional savings.
… And When You May be Better Off Buying
One of the biggest financial benefits to owning a home is the equity you’ll be able to accrue over time. If you are able to comfortably afford the initial upfront costs of owning a home (that means, not emptying your savings), the built-in equity you’ll earn over time is a major benefit to buying a home, especially if you’re looking to leverage that equity to fund other large purchases down the road.
It’s also worth noting that most mortgage payments (depending on your rate and location) are often lower than the average monthly payment for a rental of the same size. So while you’ll be paying more in taxes and general home maintenance expenses, you could end up saving on monthly housing payments overall.
Finally, if you’re unsure whether or not to buy or rent a new home, your local realtor can be a great resource to help you weigh your options. With thorough research and recommendations from a trusted professional, you can find the best option that fits your financial needs and feel confident in your decision.
The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, we advise you to consult with a licensed advisor.
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