Tough Financial Choices, Part 3: Renting versus Buying a House

Here's the next post from a Kiplinger's series about making tough financial choices:

Here's the question this time:

Should I rent or buy a house?

I knew the answer would be "it depends" but at least they give us some guidance:

There's no one-size-fits-all answer to this quandary. To come to an answer that fits your situation, ask yourself these four questions:

• Can I afford the monthly payment?
• Do I have enough savings for a sizable down payment? You generally need at least 20% of the purchase price to avoid paying private mortgage insurance. Low-down and no-down financing can help, but you'll still need enough for closing costs, origination fees, and other expenses -- and you'll probably pay a higher interest rate.
• Can I afford the extra costs that come with owning a home, such as insurance, taxes, maintenance, repairs and furniture?
• Do I plan to stay put for at least five to seven years in order to recoup my initial costs?

Many younger people find that renting is quite a bargain. In fact, the national gap between the costs of renting and buying is the widest it's been in more than a decade, according to Torto Wheaton Research. That means you may actually save money by renting, at least in the short-term. But that doesn't mean you should resign yourself to a lifetime of renting. Rather than overextend your budget to buy -- especially in today's overheated market -- you can rent comfortably within your means and save your money for the perfect opportunity when it comes along.

Yes, you have to do your homework here. I would add that generally home ownership (if done correctly: buying a house you can afford, one that's not overpriced relative to the market, etc.) is a good financial move and something you want to do as soon as you can. But don't push it and over-extend yourself before you're ready.

Click here to read part 4 of this series.

Comments

[Phyllis]

We live on the East Coast and my husband is being transfered for three years to the West Coast. We are planning to rent our house on the East Coast and return to it. My question is, should we buy a house or rent while living on the West Coast?

[FMF]

Phyllis --

I can't answer your question -- only you can. Your situation is unique to you (and I know little about it) and thus it's impossible for me to come close to a decent answer. However, I can suggest that you read the posts in the "real estate" category (on the right side of the blog). Several of them are applicable to home ownership and might help you make your decision.

Good luck!

FMF