It’s time to move. Do you rent or do you buy? This age-old dilemma faces professionals relocating for a job, empty-nesters that are downsizing, young people moving out of the family home, newlyweds starting a life together, and growing families in need of more space.
How long do you expect to live in your new residence?
The longer you plan to stay, the more sense it makes to buy a home. Generally, if you plan to stay more than five years, you should consider buying.
While this may be a good rule for most situations, there are instances where even a one year home purchase makes sense. For example, in purchasing a home that needs cosmetic updating, you’ve given yourself the possibility to build equity in your home faster than simple appreciation. By this same token, buying a new construction home, living in it for five years, then selling may not be a good decision.
If you’ll be moving within the first few years and are not interested in building sweat equity in your home, renting may be the best move for you.
The current stability of your life is another thing to consider. Is your job stable? Are you expecting that you’ll continue to earn raises and bonuses? Will you be getting married, having children, or relocating to be with aging parents in the near future?
How do the monthly costs compare?
There are hidden costs in both buying and renting.
In buying, you need to consider property taxes, insurance, HOA fees, utility costs, and building a slush fund for unexpected repairs (dishwasher, stove, water heater, HVAC, refrigerator, etc).
In renting, you need to consider annual rent hikes, moving costs if you plan on moving often, pet fees, and security deposits.
Do you have savings for a down payment?
While it’s true that you do not need a 20% down payment, you will typically need money for a down payment (may be as low as 3.5% of the purchase price), closing costs, and moving expenses.