Should I Buy My First Home or Keep Renting?
All your friends are starting to buy homes and your mom keeps asking, “When are you going to settle down somewhere?” (when we all know what she really means is, “When are you going to give me some grandchildren?”). Well, owning a home is definitely not a necessary step in becoming a full-fledged adult. It’s much more important to wait until owning a home makes sense for you--financially and personally. So, is now the time?
How long will you live there?
How long do you plan on staying in a house? Remember, houses are meant to be long-term investments. So if you plan on only staying there a year or two, it probably won’t make a lot of financial sense. Even if you plan on staying five to seven years, what happens if the market isn’t great when you’re ready to move? Will you still be satisfied staying in your home until things improve?
How’s your financial history?
You’re going to need a good credit score, a low debt-to-income ratio to qualify for a good mortgage. If you have a lot of credit card debt or if your credit score isn’t quite where you want it, you might be better off renting. Use our rent vs. buy calculator to get a better handle on the financials. Then take that time to focus on your credit. That way, when you are ready to buy a house, you’ll be in a much better position.
Do you have a down payment?
You don’t necessarily need a big down payment if you’re going to buy a house (and if you're a veteran you don't need one at all for a VA loan). But if you don’t have one, you might end up with a higher interest rate or private mortgage insurance. If you think you can save the full 20 percent in the next couple years while you’re renting, it might make sense to put off buying until you’re in a strong financial position.
How much do you pay in rent?
In a lot of cities, a monthly mortgage payment is actually less than renting. Some of the numbers might surprise you, too. If you're a millennial buying your first home in New York, it's actually 11% cheaper to buy than it is to rent. Sure, you might be taking the train from Queens every day, but owning a spacious two bedroom might beat out renting a shoebox in Manhattan, if you can afford all the other associated costs. You can use our rent vs. buy calculator to see which option will save you more money. If you have roommates, you might be able to rent a room in a big house in a great location, like on the water with a private dock. But if you’re buying, that might be out of the question.
How stable are you?
We’re not just talking about having a steady income. How settled are you in your community? Buying a home is a tradeoff. You get a little more stability, but that also means it’s much more difficult to pick up and move if you have to. If you’re young and not quite ready to commit to a city, renting might be better for you. That leaves you open to moving for a new job opportunity, a new adventure, or to make a marriage work.
How well do you know the town?
Renting isn’t just for people who’ve never owned a home before. If you just relocated to a new town for work, renting for six months or a year might be a great option. Yeah, the instability is going to be a pain to deal with. But it’ll give you a chance to really get to know the town, find those hidden gems of a neighborhood, and buy a home where you’ll be happy for years to come.
Is there a better investment?
There might be a better investment for your money than a home, especially if you think you might move in the next couple of years.
Being a homeowner means dealing with all your own repairs and improvements. So if you’re more comfortable calling your landlord than you are calling a repair person, renting might be more your style.
Are you thinking about transitioning from renting to owning? Check out our guides in our first-time home buyer center.