Budgeting Conundrum: Is It Smarter to Rent or Buy a House?

Time To Read 3 MIN READ

Budgeting Conundrum: Is It Smarter to Rent or Buy a House?

rent or buy a house

Home ownership is often touted as the American Dream, and there certainly are plenty of benefits to owning your own home. You get a tax write-off for your property taxes and mortgage interest, and you don't have to ask anyone if you can paint your bedroom a different color. On the down side, the maintenance and upkeep on the place is on your shoulders. Whether it is smarter to buy or rent depends on your particular situation.

Stability of Home Ownership

Buying a house is a long-term commitment. Traditional mortgages are for 30 years, although you can opt for shorter terms, such as a 15-year loan, but that's still a long time. If you expect to move within a couple of years, you're almost always better off renting. In normal real estate conditions it takes approximately three years to reach the break-even point where it makes more sense to buy than to rent, according to CNN's Money website. Anita Cordell, a real estate agent in Kansas City, Missouri, agrees. "If you can live in the home for five years, you're probably going to be OK, but two years might be a bit sketchy."

Count the Total Cost

"Owning a home is a luxury that not everyone can afford," Cordell says. "You can't just compare the amount of your rent to the amount of the mortgage payment. If your mortgage payment is $1,000, you can plan on spending several hundred dollars more per month in maintenance and upkeep, such as painting, landscaping, staining the deck and repairing the roof. When you rent, you expect your landlord to handle those issues. Owning a home is no fun if you end up being cash poor after the mortgage and maintenance."

Location, Location, Location

When it comes to real estate, location is everything. If you buy a house in a great location, your chances of coming out ahead are greatly enhanced. For example, if you buy a home in Miami, Florida you can expect to reach the break-even mark after 1.6 years. But you'd need to hang on your your home in San Jose, California for more than eight years to get your money back, according to the CNN Money website. "Check out the area," Anita advises. "There are good and bad real estate markets in the same city. If you can't find the house you want, in the area you want, for the price you want, there is nothing wrong with renting."

Making an Informed Financial Choice

Before you make your decision, review each of the benefits, risk factors and potential financial implications first. Whether you choose to buy or rent, knowing where your finances stand is always the first step to finding your ideal home.