Buying a House
Buying a House

Should I rent or buy a home?

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Anthony Bradshaw—Ocean/Corbis

If you can’t commit to living in the place for at least three to five years, owning is probably not for you. You’re unlikely to see enough appreciation in home prices to recoup the significant transaction costs, such as mortgage fees and agent commissions. And when home prices are falling? Forget about it.

If you’re ready to take the plunge, the first step is to evaluate your finances to determine whether you can qualify for a mortgage and have enough cash for a down payment, as well as other necessities like closing costs and a home inspection. Trulia’s Rent vs. Buy calculator can help you get a sense of this.

Here’s a useful exercise to test your ability to afford your target home. If the estimated carrying costs—mortgage plus insurance, property taxes and maintenance—exceed your current rent, try setting aside the difference for a few months. If you don’t miss the money, great. Plus, you’ve amassed that much more toward a down payment. But if you feel strapped, you know you need to either dial back on your budget or wait longer to buy.

One benefit of benefit of owning is that your home equity (the home’s value minus mortgage debt) will grow as home prices rise and as you pay down your mortgage. But housing experts like Yale’s Robert Shiller caution against viewing your home as an investment. Historically, he points out, housing prices rise in line with inflation.

Of course, finances aren’t the only consideration. Owning carries important psychic benefits for some, burdens for others. A home is where you’ll live and, perhaps, raise a family. But you’ll be less mobile. Homes take time to sell or rent out, so relocating for a job or taking time off to travel becomes more complicated. As an owner, the home is yours to paint and remodel as you wish—no landlord to answer to. Then again, there’s no one to call when a pipe bursts or the boiler craps out in the middle of the night. Are you ready to be responsible?

If the answer is yes, then home owning may be for you—assuming your finances allow it.

 

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