To Buy or Rent

Owning a home has long been part of the American Dream. But given today’s economic realities and the risks associated with real estate investments, the decision whether to buy or rent a home isn’t as cut-and-dried as it once seemed.

Should you rent or should you buy? Here’s a look at the pros and cons of each option, along with some of the key factors to weigh before deciding whether renting or buying is best for you.

Once you’ve weighed the plusses and minuses, ask yourself the following questions:

Q. Am I prepared to do due diligence? Buying a home likely will be one of the biggest decisions you make, so be sure to be thorough in researching neighborhoods, schools, resale values and other key factors.

Q. How long do I plan to live in the home? “If it’s more than five years, owning could make more sense than buying,” says FPA member Anja Luesink, CFP^®, MBA, RLP^®.

Q. Do I have enough money to cover a down payment (and private mortgage insurance if the down payment is less than 20 percent of the purchase price)? Also, do I have an emergency fund to cover unexpected and potentially substantial repairs, etc.?

Q. Am I ready for the upkeep and repair responsibilities that come with home ownership?

Q. How’s my credit score? The stronger your score, the better chance you have of getting a lower mortgage interest rate. Luesink recommends checking your credit score six to 12 months before you plan to start home-hunting so you have time to raise your credit score if necessary. Doing so could be worth thousands of dollars in the short- and long-term.

Q. How much home can I afford? “Look at your budget and what you feel comfortable with” in terms of mortgage payment, rather than relying entirely on what the mortgage company says you can afford, Luesink recommends.

Q. Am I willing to assume the risk of having my property lose value?

Q. Will I be able to afford mortgage payments if me or my spouse/partner loses a job? One final piece of advice from Luesink: Don’t let emotions cloud the home-buying decision. “Treat this as an investment. Don’t fall in love with a home,” she advises. “If one doesn’t work out, there will always be another one that comes along.”