Rent or Buy

Deciding whether to rent or purchase real estate is a very difficult, important decision to make. Your choice will have a huge financial impact on you, so it is best to weigh your options before diving in. While owning your own home may seem very exciting, you need to look at the full picture of owning a home.

1. How often do you expect to move?

If you are planning on moving around a lot in the upcoming years, it is probably more beneficial for you to rent. Every time you buy or sell your home, there are significant costs attached. For example, selling commissions for your home are upward of six percent. Unless the value of your home goes up by at least 10 percent, you will be losing money.

2. How stable is your employment situation?

If you employment situation is unstable, buying your own home may not be the best option for you. Owning a house requires a number of regular payments, such as mortgage, property tax, maintenance, and utilities. Until you are positive that you will be able to keep up to date on these payments, you should continue to rent.

3. Find out if getting a mortgage is an option for you

Before looking into buying a home, you need to take a realistic look at your financial situation and see if you will be able to make a down payment and keep up to date with mortgage payments. Once you have determined your financial situation, use the Rent or Buy calculator to determine how much mortgage you can afford, what your monthly payments will be, and your amortization period. A general rule for buying a house is that you should not spend more than three times your yearly household income on your home.

Once you have a general idea of what you can afford, start looking at properties within your price range. This will help you get a general sense at the type of house you can afford and see if it is worth it for you to transition from a renter to a homeowner.

4. Can you save enough money each month?

As a homeowner, you may not be able to save as much money as you did when you were renting. It is important, however, to ensure you leave room in your budget to put money away into your savings. If you need to stretch your budget to the point that you cannot possibly have any room for savings, you should reconsider your home purchase. You also need to factor in the cost for any unplanned emergencies.

If something goes wrong with your property, you – as the homeowner – are responsible for fixing it.

5. Renting versus buying

As a renter, you are not responsible for the maintenance of the property. As a homeowner, however, you are completely responsible. A general rule of thumb is that you will need to spend approximately two percent of the value of the house on maintenance each year.

Additionally, when purchasing a house, you need to ensure you budget for the "closing costs." These include legal fees and land transfer taxes, to name a few. You also need to remember that in order to buy a house, you need to pay a down payment. The down payment will be taken off the balance owing for the house, but it is required right away if you wish to purchase the property.

At the end of the day, after considering all the financial aspects of renting or buying, it is a matter of personal choice. Deciding to purchase a home is a big decision, so make sure you consider all of your options.