When To Buy A House And When To Rent One

The decision of renting or buying a home is best made with thorough research and close evaluation of finances.

The decision to buy a home or to continue renting is not easy. Markets vary from location to location, interest rates fluctuate, and the economy is always changing. All of these factors, however, play a part in your rent-versus-buy decision. No simple formula exists to give you a yes or no answer as to what course you should take. Numerous rent-versus-buy calculators do exist online, intended to help you decide if it would be more advantageous for you to rent or to buy a home. While these calculators are useful to an extent, do not use them as the sole arbitrator of your decision. They do not give a standard answer; for example, if you input your numbers into three different online calculators, you will almost always get three different results or recommendations.

Each of these calculators assumes different things about the future housing market and utilizes different factors when crunching the numbers. As a result, thorough research is your best asset, not a quick online test. Below are factors to consider and questions to ask yourself before making the decision to buy.

Down payment and closing costs

A down payment usually runs between 5% and 25% of the total price of the home, meaning you have to pay for a good portion of your home immediately. Add this sum to your closing costs, generally another 5% of the total price, and you need a hefty sum of money to even consider buying your own home. This number alone underlies the generally applicable advice that you should not buy a home unless you plan to keep it for several years. Ask yourself: do I have enough money readily available to pay for about a quarter of the home upfront?


Owning your home has many hidden expenses. Frequently in condominiums or residential communities, the homeowner must pay association dues. These dues cover numerous day-to-day concerns like snow removal, trash collection, etc. A word of warning: each community uses the dues for different purposes, so be certain that you know what these dues will buy you. For example, one community could take care of trash and snow removal, but they will leave you responsible for mowing your lawn. On the other hand, a different community may provide you with landscape maintenance but not trash removal.

Additionally, you will be responsible for replacing broken household goods like the laundry machine, heat vents, air conditioning, and any other appliances that wear out.

Real estate or property taxes are also inevitable - though mortgages are tax deductible, property taxes are not.

Ask yourself: even if I can make the mortgage payment, can I afford the upkeep of the home?

Monthly payments

Just as you will have hidden costs like home maintenance and association dues, you will gain other monthly payments as well. In addition to your mortgage payment, you will owe homeowners' insurance, utility bills, and other bills normally covered by your rent.

Ask yourself: how much do I really owe per month for my home once I add in the rest of the bills?


Although you take on many large responsibilities when buying a home, you will be building equity with each mortgage payment. Rent money, on the other hand, will never be of any benefit to you in the future. The benefit of equity is that you can use it as collateral for another loan in the future (for example, your infant's future college tuition), but it takes many years of payments to establish a strong amount of equity.

Ask yourself: how important is equity for my future plans?

Tax breaks

Another positive element of home ownership is that the mortgage interest is tax deductible, as was mentioned above. For this reason, home ownership is frequently used as a "tax shelter," a term for something that allows an individual to pay less taxes. For the most part, though, a mortgage is a tax shelter only for those in the higher tax brackets.

Ask yourself: am I being taxed so heavily that a tax shelter would make a significant difference in my income?


Appreciation could be either a positive or negative factor since you have no guarantee that your home or your neighborhood will increase in value. Very generally speaking, real estate investments do appreciate, but not always. Carefully consider the future value of your area and your home before buying by looking at the comparable homes in the area, called "comps." Usually comps are analyzed extensively by realtors to learn what areas are good investments. You can do your own comps, though, by simply comparing the sale and rental prices of the homes in your area. If both prices have been increasing, then the homes have been appreciating. Ask yourself: do I think this area is a good investment after doing research on past and present home values?

None of the above factors or questions by themselves should make or break your decision to rent or buy. Instead, each factor should be considered individually after scrutinizing your present and potential income and your future plans. The decision to buy is an important one, and it should not be made without thorough thought and research.

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