Should you rent or buy a house? (6 things to consider)
The “rent or buy a house” question has no clear answers. It depends a lot on your situation, where you live in the world and what your plans for the future are.
However, there are some general considerations that can give you better clarity so that you make the right choice.
EU’s statistical office, Eurostat, has charted how frequently people move from one home to another.
Within a five-year period, 17.7 percent had changed their housing in EU.
It’s a decent percentage of citizens who must take some pretty important choices about their housing situation.
The goal or vision of being financially free requires that you have a good balance in terms of saving and investing.
You get nowhere if you bought an expensive house and must pay off a lot of debt and interest.
It’s actually a paradox to have an expensive house that you can not use anyway because you have to work more to pay it.
In addition, you should also consider the other costs that are affected by your choice. Eg. your location in relation to your work and daily life. It can quickly become an expensive pleasure with long distances.
Personally, I don’t want a payment that exceeds 20% of my income but again it can be difficult to compare our different situations. However, you should make you some considerations.
Currently, my mortgage is approx. 15% of my income and it will actually decrease since my income will rise 🙂
To uncover this great “rent or buy a house” topic, I have received inputs from Jeff Anttila from REDFIN.
REDFIN is a well established real estate brokerage company that represents people buying and selling homes in America.
The following is written by Jeff Anttila from
Should you rent or buy a house?
You might be moving to a new area or maybe your boss gave you a nice bump in your salary and you’re thinking about upgrading to a nicer house or condo.
Whatever the case may be, you’re questioning whether if you should continue renting or if now is the right time to buy a home.
There are no easy answers to this “rent or buy a house” question; however, here are six things to consider that may help you with your decision.
The housing market
The decision to either rent or buy a house may very well come down to the specific area you want to live and what that housing market looks like.
Is it cheaper to rent a home in your area of interest? Or, is buying a home the more affordable option?
The real estate market can vary widely from coast to coast and from cities to suburbs to rural farming communities.
However, the law of supply and demand always remains the same.
For example, if there are few rental properties on the market and the demand is high (there are a lot of people wanting to rent), prices on available properties will most likely go up.
The same is true with buying a house. Fewer properties available for sale while demand for housing is high, typically results in higher price tags and results in what we call a ‘sellers market.’
Of course, the opposite is true. When demand is low (fewer people looking for rentals or buying a home) and supply is high, prices usually drop resulting in a ‘buyers market.’
💡 Start by looking into both markets in your area: rental properties versus houses for sale.
You may be pleasantly surprised that now is the time to buy a home. Or, maybe you need to wait a bit for the housing market to cool down so prices are more within your price range, and giving you time to save.
How much can you afford?
Though mortgages can be cheaper than rent in some areas, buying a house is still an expensive undertaking.
One of the first things you can do to help you understand your financial situation better and how much of a house you can actually afford is to use an Affordability Calculator (This one is for the American home buyers).
💡 Find out how much you can afford with your future plans in mind
Though calculators such as these will not guarantee a home loan, they will give you a great overview of what you can afford for a mortgage.
There are several costs associated with buying a house. When you rent you generally pay for first and last month’s rent, a security deposit, and possibly a pet deposit.
When buying a house you should plan on costs such as a down payment (typically 20%), closing costs, inspections, insurance, taxes, and possibly several other costs that often are unknown to first-time homebuyers.
Buying a home can be a great investment, but if you’re not financially prepared, you may want to focus on paying down high-interest debt first, increasing your credit score, and save your money.
Homeowners get tax benefits
Buying real estate means you get to take advantage of tax breaks, such as deducting the interest you pay on your mortgage loan.
Most homeowners receive a statement from their lenders by the end of January (form 1098 in America) with the amount of mortgage interest paid during the previous year, which is often deductible.
💡 Check to see if and how you can deduct your interest payments as conditions can change from year to year
Homeowners may also deduct annual real estate taxes paid based on the assessed value of their property, and certain energy-efficient home improvements.
You can install energy efficient heating and cooling systems, make certain roof changes, windows and doors, and other improvements.
These deductions may vary from year to year, so again, check the IRS.gov website (if you are from America) for the most up-to-date information regarding tax breaks for homeowners.
Renters enjoy more freedom
Straight and simple, renters have the freedom to move around more often and more freely.
Homeowners are committing themselves to an area for a longer period.
If a renter doesn’t like their neighbor, neighborhood, or city, they can move relatively quickly to a new area without any of the stress of prepping and selling a home. A process that can easily takes months or even longer.
For a homeowner to move to a new area, it’s not as simple as waiting for a lease to end before moving on.
To sell a home, a homeowner needs to get a listing agent, choose a competitive price for their area, prepare and stage their home, get listing photos, and do open houses to promote their property. To say the least, it’s a process that takes time.
💡 Ask yourself what you need most in your current life stage in relation to your goals and vision?
Homeowners build equity over time
Home equity equals future wealth. Homeowners pay a monthly mortgage payment, which gradually reduces the principal mortgage amount over time.
Along with the value of real estate generally increasing over time, homeowners build equity in their home, meaning that homeowners own a little more of their property with every mortgage payment.
The result is that when they sell their home, they will get enough money to pay off their home loan, and they will have a surplus that they can use towards the purchase of their next home.
The more home equity one builds the more wealth they’ll have in the future.
In contrast, renters still make a monthly payment, but these funds do nothing to contribute to the renter’s long-term wealth.
Instead, their monthly rent payment typically helps someone else build equity in the rented property.
Renters have less responsibility
One of the primary benefits of renting a home is that you are not responsible for maintenance and repairs, the property owner is.
Homeowners must maintain the upkeep and integrity of their house.
If something breaks such as an appliance like a fridge, or worse, you have plumbing or heating issues, these unexpected costs can quickly add up and become very expensive to repair.
Renters don’t have to worry about the financial burden when such unexpected problems arise.
In some cases, renters maintain the property’s lawn (particularly if they rent a single-family house), but for those renting an apartment or condominium, property owners generally maintain outdoor and shared spaces.
Should you rent or buy a house? The decision of renting vs. buying a home is a personal one, and the right choice for every individual or family depends on multiple factors.
A careful review of your current financial circumstances, the market conditions, and other factors will help you determine if renting or owning is the best choice for you.
I hope this “Should I rent or buy a house” article gave you some thoughts about your current situation.
Good luck in your housing hunt!
That’s it. I am writing continuously while I’m through the process myself. I therefore only write what has worked for me. Thanks to REDFIN and Jeff for contributing in this blog post.
💡 Did you like this “rent or buy a house” topic? Leave a comment below 🙂