For most of us, our first home is one of the most exciting experiences in our adult lives. It will also be the biggest financial decision we will probably make. And while owning your home is the American dream, it also comes with plenty of financial responsibilities. Deciding whether you should buy is not something to take lightly, so how do you know if you’re ready?

 

Factor in Cost Considerations

While cost is an obvious factor on deciding whether you should rent or buy a home, there is sometimes a fine line between the two in the long term, especially for markets and locations which may have little difference between rental rates and mortgages. Beyond the purchase price, you might want to consider things like the down payment, closing costs, homeowners association or co-op fees, insurance, property taxes, utilities and maintenance. Interest rates impact the mortgage rate and may also trigger increases in rental rates. Here is a tool we love to use to compare costs over time.

If you’re out of debt, have enough cash for a down payment, and have an emergency fund (3 to 6 months worth of expenses saved), chances are you are better prepared to buy a home.

 

Consider the Location

Aside from cost, one factor which will determine whether you should buy or rent is the location. If you like or prefer the neighborhood you’re at right now and if you know you will be staying for the next five years, you might want to consider buying instead of renting. Before you make that decision though, make sure you have considered the various scenarios which usually impact staying put: whether your job is stable and what your life plans are for the upcoming years.

 

Think About Your Life

We don’t mean in a profound, Zen sort of way, but rather in the long term. Do you feel you are emotionally ready to buy a home and all the responsibilities it entails? If you find yourself flitting from one job to the next, or if you don’t feel like putting down roots yet, then renting would be the better option for you. People going through major life changes, such as going through a divorce or downsizing, would also be better off renting while they determine what they want for their new lifestyle. On the other hand, having your own home will be much more important if you’re already settling down and having a family.

 

Weigh the Risks

There are risks for both renting or buying a home, and make sure you have gone through them or done your research to add them to your list of considerations. Although you can build equity with your own home, and they may present possible tax benefits, a decline in home values and maintenance costs could make a dent in your finances.  Rentals have fewer upfront costs and paperwork involved, but you are beholden to a landlord who could increase rent or sell the property, plus your options would be limited and based on vacancies.

 

Choose What’s for You

There isn’t always a clear answer on whether you should rent or buy. Bottom line is, making this decision will have to be based on what’s right for you. Depending on your life situation, finances, and goals, one thing may be better than the other. What’s important is you do your research and get guidance so that you can make an informed decision.