In your life, you’ve had to face some difficult questions. Do you take the job you love but that pays a pittance or the dull job with the juicy paycheck? Do you marry the boring guy you’ve been dating for three years or cut him loose in the hope of finding your Prince Charming? Do you choose to buy or rent a home?
There are no easy answers, and while we can’t help you out of those first two pickles, we can give you a little insight in the third question.
Is It Smarter to Rent or Buy?
If you are like most Americans, then your biggest monthly expense is probably related to your housing. Whether you rent or buy, you are writing a big check each month. Some people think that renting is basically throwing away your money, while others hate the idea of being chained to a 30-year mortgage and mowing the lawn every week. Who is right?
The truth is that there is no correct decision when it comes to renting or buying; there is only what gives you a better financial advantage, and the answer to that question depends on your unique situation.
How Long Will You Stay in One Place?
According to real estate website Trulia, buying a home is 37.7% cheaper than renting in the United States. That would seem to seal the deal, but this factoid was based on the assumption that buyers would live in their homes for at least seven years.
Buying a home requires a high upfront cost that is mitigated over time as the homeowner builds equity in the home and the home itself increases in value.
However, we live in a time where it is not uncommon for people (especially millennials) to jump around jobs or even entire career fields frequently. If you aren’t planning to stay put for at least seven years, you may actually lose money buying a home.
How Much Have You Saved Up?
Trulia’s assertion that buying a home is cheaper than renting also assumes that a homeowner is able to put down 20% of a home’s value. Making a 20% down payment often leads to a lower interest rate, helps build equity more quickly in the home, and avoids the need for monthly private mortgage insurance, which is required by most banks on loans with less than 20% down.
Scraping together 20% is far easier in markets like Great Falls, Montana, where the median home value (according to Zillow) is $157,700. You’d only need to save $31,540 to hit the 20% down payment mark. The story is quite different in San Francisco where the median home price is $1,149,000 and a 20% down payment will set you back $229,800. (Need help saving? Here are six savvy tips to spend less and save smart.)
Where Do You Want to Live?
That brings us to our next major factor. Trulia’s survey was based on a national average, but every housing market is different. It may be impossible for most people to even think of buying a home in sky-high housing markets, like San Francisco, New York, Boston, and San Diego, while housing can be incredibly affordable in other parts of the country.
Ultimately, you’ll need to crunch the numbers in your city of choice to determine whether your monthly mortgage would be cheaper than rent. Just keep in mind that there are a few special benefits to owning a home. For one, you get to deduct your mortgage interest on your taxes if you itemize.
Secondly, though a good part of your mortgage payments will go straight toward paying off interest when you first purchase your home, you will slowly build equity in your home over time. Also, the housing market is currently in an upswing (though, as we’ve learned, it can always go down again), which means that it can increase in value over time.
Ultimately, the real answer comes down to your personal preference. Maybe you’ve always dreamed about having a place to call your own, a yard for a dog, and more space for your children. Or, maybe you hate the idea of having to fix appliances when they break and love living in your apartment right in the middle of a city.
At the end of the day, you’ve got to weigh the financial consequences, and then ask yourself what makes sense for your life, your preferences, and your priorities. As long as you do your homework and make a conscious decision, then it’s the right one for you!
Want to read more great financial articles for women? Take a look at our budget and planning article archive.