The most pressing question for anyone who is currently leasing an apartment or a home is whether or not it makes sense to continue to rent or if the opportunity to buy is too good to pass up.  Experience shows that the answer to that question depends on a number of factors.

How long do you plan to live in the area? If things are pretty stable and you plan on staying put for at least the next 5 years, it might make sense to purchase a home.  On the other hand if you might receive a job transfer or your lifestyle is more nomadic, renting is probably the way to go.  Once you factor in the costs associated with purchasing a home, consider likely appreciation rates, and adjust for the fees required to sell a home, chances are good you will not make a profit until at least year three or four of ownership.

How would home ownership affect/reflect your lifestyle? Are you the type that likes to express your own individual style (i.e., bright paint colors, light fixtures, interior decor)?  Or do you prefer a very basic place with low maintenance and little pizazz?  If you find you are the type that enjoys decorating or improving a space, then home ownership could provide the ultimate opportunity for self expression.  You can style the interior of your home any way you like and not have to worry about getting approval from anyone else.  On the flip side if you’d prefer to have everything done for you and don’t give a flip if your walls are a dingy white and your carpet is riddled with stains, then renting might be for you.  What’s the point in spending your hard earned money improving a property that belongs to someone else?  When you buy a home, the canvas is yours and the money (if spent well) means added equity.

What does your financial position look like?  When you rent an apartment/house, you can get into it for little more than a security deposit and your first month’s rent.  When you buy a home (unless you qualify for a zero down program), you are looking at a minimum of a 3.5% down payment with FHA financing.  That is not to mention buyer’s closing costs that you will also most likely be responsible for.  When you rent an apartment/house, you are responsible for your monthly rent payment and utilities.  As a homeowner you pay your monthly mortgage, property insurance, property taxes, property maintenance, utilities and sometimes homeowner’s association dues.

Rent vs. Buy Calculator – Here is an excellent interactive website (from The New York Times) that will give you added insight into the age old question about whether to Rent or Buy?

Advantages to Owning a Home

Your Monthly Payment (P&I – mortgage principal & interest) remains the same over the life of your loan no matter if the value of the property rises over time.  Whereas when you rent, lease prices can continue to increase year after year.  When you own your home, your monthly payment is going toward reducing the balance of your loan.  When you pay rent each month, you are paying someone else’s mortgage for them.

You can decorate and remodel the home to match your style and personality.  Every dollar spent on improvements to the property helps build equity over time.  Whereas when you rent, you are probably required to reinstate the property to its prior condition or compensate the landlord for doing so.

There are tax advantages (deductions and adjustments) associated with home ownership.  You should consult your CPA for details specific to your situation.

Advantages to Leasing (Renting)

Flexibility - when your lease is up at the end of the term, you can pick up and move elsewhere will little or no liability.  When you own a home, unless money is a complete non-issue,  you are at the mercy of the market or in other words your ability to sell your home for an amount that makes sense.

Maintenance – Outside of any improvements you elect to make and pay for on your own, someone else is responsible for property maintenance and improvement.  If something breaks or is not working properly, you call the landlord and someone else fixes it.  When you own a home if something breaks or needs to be addressed, guess who is responsible?

How much home can you afford? Here is a quick and fun tool to help you project how much home you may be able to afford to purchase.  Understand that the only way to know exactly what you can afford to purchase is to speak with a mortgage consultant about your exact financial situation.