Should You Buy or Rent Your Home?

Can't decide if you should buy or rent? Our friends at Trulia.com offer their best advice.

By Tara-Nicholle Nelson

It used to be a given in most Americans’ minds that as soon as they could buy a home, they would – and did. After the bubble, though, there’s been a movement afoot of renters by choice — people who can afford to buy, but are choosing to rent for various reasons. If you’re struggling with whether renting or buying makes the most sense for you, here are 3 strong reasons for renting and 3 strong reasons for buying.

Plus: 13 Tips for Selling Your Home

Reason to Buy #1: You’ve always wanted to.
Many Americans simply believe in owning a home. In a recent study Trulia.com commissioned with Harris Interactive in August 2010, 72 percent of Americans surveyed said homeownership is still a part of their personal “American Dream.” Owning a home because it’s something you’ve always wanted to do — whether because you’ve got a vision of life in a home that belongs to your family, or because you’ve always dreamed of owning a fixer-upper — is probably one of the better motivations for buying a home.

Reason to Rent #1: You’ve never really wanted to own a home.
Owning a home is a serious commitment of time, effort, energy and — most of all — money, both up front and for years to come. If your CPA, your friends and even your Mom are telling you that you should buy a home, but you have no interest or desire in doing so, you probably shouldn’t.

Reason to Buy #2: You love a deal.
You might have heard by now that home prices have rolled back to 2003 levels, and interest rates are bizarrely low — right around 4.5 percent on a 30-year-fixed rate deal. If you’ve always had a house hankering and you’re one of those types who just loves a good deal, it might be a good time to get serious about buying. Depending on your market, prices will probably stay relatively flat for a little while, so even if you need to put a savings-and-credit-building plan in place, you might have time to build up your reserves, boost your FICO score and still get a great deal.

Reason to Rent #2: You’re broke.
When it comes to down payments for buying a home, myths are rampant, so let’s bust them now. Buying a home on today’s market takes a down payment minimum of 3.5 percent of the purchase price of your home. Even if you can scrape that up, there are many homeownership costs beyond the mortgage including:

  • your down payment and closing costs
  • property taxes
  • homeowners’ insurance or homeowners’ association (HOA) dues
  • private mortgage insurance (if you put less than 20% down)
  • home warranty, maintenance and landscaping
  • utilities that most renters don’t pay, like water, garbage and gas

Reason to Buy #3: You plan to stay put and want to eventually own your home free and clear.
Rents rise over time. Landlords can evict you — in many places — when they decide to sell the place. If you know you plan to live in the same town or even neighborhood for years to come, owning your home may be one of the best hedges against being forced to move or pay higher rents — especially if you lock in a low-interest, 30-year fixed rate loan. The ideal is to be committed to your home at least 5-7 years to make ownership a sensible decision.

If you ever want to own the place you live, free and clear of a mortgage or the obligation to pay rent, the only way to make that happen is to buy your home (and not keep refinancing or extending the term of your loan, once you do!). Thirty years from now, you could be without a housing payment at all – other than taxes and insurance.

Reason to Rent #3: You want to buy – eventually.
Premature homebuying is a huge money mess-up. Many a foreclosed homeowner lost that home at the end of a snowball effect from not having enough savings to cover the mortgage payments and unexpected expenses. These folks end up wishing they’d waited a little longer and had more of a cash cushion in the bank; but because they rushed into homeownership, they’re now stuck with credit and other issues that can prevent them from owning a home for as long as five years. . If you really want to own a home, sit down and plan it out with a local real estate broker, mortgage broker and your own personal financial advisor. Put an action plan in place, then work the plan, even if it means you have to rent for a couple of years while you save money. Get the required job tenure and/or build your credit.
Not buying too soon makes it much more likely that you’ll be able to buy sooner than later — and that when you do buy, you’ll be able to hold onto your home.

Tara-Nicholle Nelson is a Consumer Educator for Trulia.com

Plus: Top five cities where it’s better to buy (or rent) a home