Life is full of decisions. There can be simple like what to eat for dinner and where to eat? Or complicated ones like buying a home or rent it. One has to sacrifice the forgone option in a decision. There is no decision that we can make that doesn’t come with some sort of balance or sacrifice. – Simon Sinek. So when it comes to the decision of rent vs buy, you have to let go of certain advantages that come with the unchosen decision. For example, if you are planning to buy a house, well then you are blocking the amount you pay for the down payment. You could’ve invested it and got a higher return. But the advantage is you have something that you can call it your own. There are many things to consider while deciding whether to rent a house or buy it. Here are a few things that one has to consider while taking this decision.
How long are you planning to stay in the house?
The duration of your stay plays a major role in your decision making. When you are planning to stay for long in the house its better you buy it. If your duration of the stay is anytime below 7 years then you are better off renting out a house or apartment. This way you can save yourself from the debt.
How much savings you have?
This is another important factor. How much money have you saved up or invested for the down payment? A minimum of 20% is usually the down payment for owning any house. A lot of money is committed towards the down payment. And one has to have that amount to be eligible for a loan. If you have enough saved then it’s up to you if you want to spend that for the down payment of a home or use it for other financial goals.
Can you afford it?
With an excitement to own/rent a new house one always forgets the unplanned expenses that come their way due to the decision was taken. Renting a house in a prime location might be a big blow to you than owning a house in a place less happening. Owning a house can also come with a bunch of new expenses. Make sure you are aware of all the costs before you take a decision. Always chose an option that is pocket-friendly.
How much debt do you currently have?
Monthly EMIs, credit card payments and all other loans come under debt. You would not want to increase the debt payments as debt is always a burden. A good rule of thumb is that the debt should be 40% or less of your income. If you are willing to buy a house then make sure your debt is 40% or less than your income.
What’s your top financial priority?
Buying a home can slow down the progress of other financial goals. So I suggest one better write down the financial goals and list it in the order of priority. If buying a home tops them all then go ahead with that decision. If not then stick to renting.
How will rent vs buy decision affect your lifestyle?
Owning and renting both require lifestyle changes. And exiting values play an important role too. People who prefer freedom, privacy, and control over their life prefer owning. Others prefer flexibility, convenience and short-term commitment that usually comes with renting.
Make your decision wisely. Make sure you take into consideration your current income, debt, and lifestyle into consideration before you make a decision. Let home buying not just be an emotional decision. Keep your thinking rational and make the decision that best suits you and your lifestyle. Know more about the real estate market in the top cities and where owning is better than renting here.