Everyone struggles with the question at some point in their lives. Should you rent a house or should you purchase your home?
Buying vs renting has become one of the most debated questions in the real estate and housing market. It’s a foggy discussion, but one thing is clear: there is no right answer for all people. The decision to purchase depends on so many factors, including your personal situation and the area where you live.
Above all, you need to be personally ready to purchase. You should be able to afford a home in your area, and the market conditions should be ideal. But most of all, you need to be ready.
A lot is made about interest rates as well, but as we will show, this should be a secondary consideration. As the saying goes, you should “marry the house, date the rate.” This simply means that if the house fits your needs, you can make the purchase and refinance later.
Buying vs Renting: How to Make the Right Decision For You
When you are considering buying vs renting, there are many aspects you need to consider. You should research the area where you are buying and understand the current environment for interest rates. Above all, however, you need to consider your personal factors…
What are Your Personal Factors?
Are you financially prepared to purchase a home? Regardless of the region, the market, available inventory, and current interest rates, this is by far the most important consideration. If you are not financially ready, you’ll struggle with homeownership even in the best conditions.
Before purchasing a home, it’s important to build a strong foundation of savings. This savings cushion should be large enough to include a downpayment, as well as the cost of unexpected expenses that come with homeownership.
You should also be in a position where you can reasonably expect to stay for at least a few years, preferably five years or more. If you are fresh out of college and could, potentially, move to any corner of the country, you may want to rent. However, if you are well established in your area, with kids in school, a spouse in a comfortable job, and a career that is gaining traction, you’re probably ready to purchase.
Understand Your Budget
Many American don’t operate on a specific budget. If it weren’t for annual tax documents, many would have no idea how much they earn on an annual basis. To be a good, responsible homeowner, you need to understand your budget so you can understand how much you can afford.
Most recommend somewhere between 25% and 35% of your income for a mortgage. So if you earn $8,000 a month, your payments should be somewhere between $2,000 (25%) and $2,800 (35%). This is not a hard rule, but merely a recommendation. If you go over you may be able to successfully make payments as long as you don’t have a high amount of other debts. Usually buyers want to be below 35%.
Know Your Area
The local housing market can play an important factor in your decision. If homes are relatively affordable, and you can make a quality purchase (one that’s not a financial stretch nor a compromise that won’t make you happy), it may be time to buy.
But the situation in many markets has forced would-be buyers to wait. If homes are particularly expensive and demand is high, it may be best to take your time, keep saving for a downpayment, and continue to rent a home.
Should Interest Play a Role in Your Buying vs Renting Decision?
One of the key considerations, one that gets so much attention in the media, is interest rates. With countless articles on the topic, it’s easy to assume that interest rate is the single most important factor in your decision.
We’d like to push back against this assumption. At least a bit.
Yes, interest matters. But whether rates are high or low, if you are ready to purchase, you should start shopping for a home.
Basically, one of three things will happen with future interest rates: 1) they will go up, 2) stay the same, or 3) go down.
If they go up, you’ll be happy you purchased when you did. If they stay the same, then you did not gain or lose anything (from an interest-rate perspective) when you made the purchase.
But what if they go down? Wouldn’t it be better to wait for interest to decline, then make the purchase? The thought that interest rates will decline often causes unnecessary delays in home purchases.
First of all, there is never a guarantee that interest will decline. Second, if interest rates do decline, you can probably refinance. Essentially, the interest rate you have at the beginning of your home ownership does not have to be the interest rate throughout.
Remember: “Marry the House, Date the Rate”
While we don’t want to completely disregard interest rates, you should understand that nothing is set in stone and no rate is permanent. You can always refinance, which is why we are fans of the phrase “marry the house, date the rate.”
This simply means that when you make the purchase, you can be committed to the house. You do not have to be committed to the rate. Keep this simple phrase in mind when you are shopping for homes and securing a mortgage.
Purchase or Refinance, We are Here to Help
You deserve the lowest possible interest rate on your loan. Contact our team today and we’ll find the loan that works best for your specific needs.
Whether you are searching for a new home or want to refinance to a lower interest rate, we can make it happen!
