Now or Later?

Which is better, renting or buying a home? This is a question that virtually all adults must ask themselves at one point or another. Before you answer this question, there are a few other questions you should ask yourself first.

Are you looking to purchase a home as an investment? If return on investment is very important to, you may want to reconsider your future living arrangements. In previous decades Americans were accustomed to their homes being a guaranteed means for generating wealth. Wise citizens purchased homes in preparation for the future and liquidated during retirement. Frankly, those types of guarantees simply no longer exist. These days the value of a home can now go down just as easily as it can go up.

"The bull run in housing we saw in the '90s and early 2000s will not happen again in our lifetime." U.S. News and World Report

Considering the health and sustainability of the city you would consider buying in is key before deciding to take out a mortgage. Municipalities that are nearly bankrupt will have difficulty putting out fires, stopping thieves, maintaining roads, and picking up trash. All of these factors greatly impact property value and therefore the potential of your investment. If your municipality were in a bad position, how much would your home be worth on the market?

This is not to say that your home will not be worth more in the future than when you bought it. If you want a robust investment portfolio more than you want to buy a house, however, you may be better off talking to a financial adviser rather than a real estate agent. Furthermore, if you believe you will be in your home for less than five years and plan to sell it at a profit, experts recommend sticking with renting.

Have you crunched the numbers? One of the biggest mistakes future homebuyers make is comparing monthly rent to monthly mortgage payments. When trying to project costs, there are many items that tend to get overlooked. Fees such as property insurance, principal interest, homeowners association fees, maintenance, and property taxes should all be included in the additional monthly cost of homeownership.

Maintenance, in particular, should not be underestimated. If an appliance goes out, a pipe leaks, a window breaks the home owner is fully responsible. This means the owners will either have to fix it themselves or hire a professional. Other ancillary costs as that often go overlooked and unbudgeted are seasonal items like snow shovels, lawn mowers, and new furniture just to name a few. Needless to say, these items add up and must be considered when comparing the cost of rent and mortgage.

Another consideration that can hardly be quantified is stress. Can you handle the stress of home ownership? Contentious prospective homebuyers typically do their best to weigh the financial cost of their decision to buy is it is likely the biggest financial decision they will ever make. However, another huge factor to carefully consider when deciding to purchase a home is stress.

If other large-scale life events have recently taken place in life, such as marriage, having a child, switching careers it may be wise to postpone purchasing a home. An overload of stress can potentially lead to missed payments which can ultimately result in damaged or even destroyed credit. In the worst cases, stress can even lead to the loss of a home. If you are not currently in a very stable position, it may just be in your best interest to continue renting for now and consider a purchase once your stress level has balanced.

Age also plays a huge part in the consideration of whether to rent or buy. How old are you? In your 20s or even early 30s, there are some excellent arguments for not buying a house. This has much less to do with responsibility and maturity and much more to do with flexibility and mobility. At this age you're still quite young, and who knows where life’s journey will take you? If you own a house, however, you may find that life can't take you to as many interesting places.

In the end, the decision to own versus rent is as much a lifestyle decision as it is an economic decision. For most people the desire to own a home is driven by household formation; people get married, start families and want to buy a home.

So what's the verdict? Is it smarter to rent or buy? In light of these facts you may have already gathered that as a general rule, the older you are, the more likely that buying a house is a smarter decision for you. The younger you are, the better off you are being a renter. In either season of life, protecting your credit and growing your credit score come with some amazing advantages when you are ready to take the step towards homeownership.

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