To Rent or Buy? 5 Questions to Guide Your Decision

Torn between buying and renting? Consider these five questions, inspired by a CNN news article, to help guide your decision:

How long do you plan to stay?

If you are not planning on keeping you home for five to seven years or more, transactional costs associated with home buying and selling, such as commissions and closing costs, may not be worth it. 

Do you have enough cash to cover closing costs?

Banks typically don’t lend more than 80% of the cost of the home. Buyers have to come up with a 20% down payment, on top of closing costs. Take 20% of the home you are considering purchasing—can you afford a down payment of that amount?

Can you cover additional homeownership costs? There are many expenses, aside from the mortgage, associated with homeownership, such as property taxes, insurance, heat, utilities and regular maintenance. When you rent, you often forgo some of these financial responsibilities. 

Can you claim the tax advantages of homeownership? Yes, mortgage payments are deductible and can reduce tax bills. However, this benefits high-income earners with significant mortgage payments. Many borrowers claim the standard deduction on their taxes and save nothing from the deduction.

Do you have a stable job? This determines whether you can expect to be able to afford the above expenses! If your employment situation is unsteady, it’s probably not a great idea to assume the responsibility of homeownership until more stable ground is reached. 

The New York Times has created a calculator that allows you to enter personal information such as monthly rent, home price, down payment, mortgage rate, and annual property taxes to determine how long you would have to live in a home so that buying would be more cost-efficient than renting.