Purchasing a home can be a major financial decision. And the decision as to whether it is the right time to purchase a home depends on a number of factors. And it is not just your finances.
Although your finances are important, other things to consider before putting in an offer include your plans, budget, need for flexibility and the current real estate and mortgage market.
So should you rent or purchase a home? Find out by asking yourself the following questions.
What are your future plans?
Renting can offer more flexibility if you may move within a few years. Buying involves upfront and eventual selling costs, so the better choice depends on your local rent, purchase price, financing, ongoing expenses and how long you expect to stay. Compare several scenarios instead of assuming either option is always cheaper. Home values can fall as well as rise; appreciation is not guaranteed. See the CFPB’s rent-or-buy considerations.
What flexibility do you need?
Base the decision on your budget, likely moves and willingness to handle maintenance, rather than assumptions about your age or relationship status. Consider how secure your income is and how much flexibility you need before committing to ownership. Review the CFPB’s financial considerations.
How much does it really cost?
There are a number of fees that come with home ownership. And as we have gone over a few already, it is best to run the numbers yourself so you have a better idea of how much it would cost to purchase vs rent.
A home purchase can require a down payment, closing costs and moving expenses, whether the home is newly built or a resale. Texas closing charges may include title, escrow and recording fees; who pays particular costs depends on the transaction and contract. Compare your lender’s Loan Estimate and ask the title company to explain its charges. The Texas Department of Insurance’s title FAQ explains title and settlement charges.
You will have to furnish the new home, you may need to purchase window treatments and do any needed renovations or repairs.
Compare the total cost of each option. Renters should check the lease for deposits, utilities and renters-insurance obligations. Owners should budget for mortgage payments, property taxes, insurance, utilities, any association dues, and maintenance and repairs. Keep money available for unexpected expenses. See the CFPB’s homeownership cost guidance.
Depending on how much you have saved to put down on the property and how much rent is in the city, you would have to run the numbers yourself to see what makes sense. But make sure you consider the amount of buying vs renting in the long run and the costs associated with each.
Are you in high interest debt?
Review your existing debts and monthly payments alongside the full housing payment and an emergency reserve. Discuss your budget and loan options with a lender or a HUD-certified housing counselor before deciding whether to buy now, reduce debt first or continue renting. The CFPB’s preparation guide can help you assess your finances.
Have you planned your down payment and cash to close?
Your required down payment depends on the loan and lender; 20% is not a universal requirement. Some eligible buyers have low- or no-down-payment options. Preserve savings for closing costs, moving, repairs and emergencies instead of assuming every available dollar should go into the down payment. See the CFPB’s down-payment planning guide.
A conventional loan with less than 20% down may require private mortgage insurance; other loan programs have different rules and costs. Ask lenders to compare the complete payment and upfront costs of the options you qualify for. Read the CFPB’s mortgage-insurance explanation.
If family may help, tell your lender whether the funds are a gift or a loan before relying on them. Documentation and eligibility rules apply, and borrowed funds add debt and payments. Review the CFPB’s down-payment funding guidance.
Is your income likely to continue?
Consider whether your income is likely to continue and whether the full housing cost fits your budget. A particular job title, contract-work arrangement or length of service does not by itself decide whether buying or renting is right for you. If income is uncertain or you may relocate, compare the risks and flexibility of each option with a lender or HUD-certified housing counselor. See the CFPB’s timing guide.
Conclusion
It may seem like the obvious choice to build equity and bank in on future appreciation, but purchasing may not always be your best option.
Compare your plans, cash available at closing, total monthly costs and need for flexibility. Neither renting nor buying is the best choice for everyone.
