Should You Rent or Buy a Home? These 5 Questions Will Help You Decide

Despite the many benefits that homeownership can come with, when it comes to deciding where to live, there’s really no hard and fast answer.

For some, buying a home may very well make the most sense — financially or otherwise. For others, though, renting can be the clear-cut winner, saving hassle and cash or just best suiting your lifestyle in the long haul.

The truth is, the right move depends on a variety of personal factors — the housing market and home prices where you live, your goals, your life and career trajectory, what you can afford, and, perhaps most importantly, your timing.

Are you trying to decide whether to rent a house or to buy one? Here are the factors you’ll want to take into account as you do.

1. How long do you plan to stay?

One big factor is how long you plan to be in the home you’d rent or buy. If you’re only looking for something to live in for the short term, then renting is likely best, allowing you to more easily pick up and move when needed and save on all those big, upfront costs (like a down payment and closing fees).

“Renting is excellent if you are going through a transition for a short period of time, if you cannot figure out your life, or if you just went through a huge life obstacle and need a little time to settle in before purchasing,” says Jay Sharifi, founder of Legacy Wealth Management. Otherwise, he says, “Why burn cash every month?”

For those looking for a longer-term place, homeownership is likely best. This will allow you to put down roots and, in many cases, cash in on a healthy profit once you’re ready to move years down the road.

“Owning is for people who plan to stay in one home for at least several years and who want to build their equity over time,” says Brian Hourigan, senior managing director at BOND New York. “Most properties appreciate annually, but a homeowner usually needs to spend five or more years in their home to enjoy a comfortable profit when it comes time to move on.”

2. How's your job?

Your employment situation — and where it’s headed — also needs to play in. Not only will it impact where you’ll need to live, but it will also affect your finances, too.

If you’re not sure you’ll have the same level of income down the road, for instance, opting for a large mortgage payment you might not be able to handle probably isn’t wise — nor is spending all your savings on a down payment or closing costs.

“The upfront costs of buying are a real roadblock for a lot of people looking for housing,” says Brandon Ashton, director of retirement security at Cornerstone Financial Services. “Even if you have the capital, if you have a career that requires you to move around or you just don’t plan on staying very long in one spot, renting would be the choice for you.”

Be careful, though: Rents aren’t usually guaranteed. Landlords can increase them each time you renew your lease. This might eventually put your rent out of reach, too. (Though typically, finding a new rental will be much easier than selling a house would be.)

3. What are your goals?

You should also consider your long-term plans. Do you expect to start a family or adopt a pet soon? Do you want to start building up your nest egg or growing your wealth? If so, buying a home is probably the better fit.

“Nationwide, renting may cost less monthly, but homeownership builds wealth over time,” says Kevin Huang, an associate real estate broker with Elegran Forbes Global Properties.

Huang’s right: With homeownership, each mortgage payment you make helps you build equity, which directly results in profits when you sell the home. With renting, on the other hand, your money goes to pay your landlord’s mortgage — and when you move on from the property, you’ll get none of that back (except for possibly your security deposit).

“You might as well pay your own mortgage rather than someone else's,” says Melissa Leifer, a real estate agent with Keller Williams NYC. “Then you will have an asset that you can later resell, and you are not at the mercy of a landlord raising your rent or selling the property.”

4. Are you up to maintaining a home?

Renting is a fairly hands-off situation. Typically, you’re not financially responsible for repairs or maintenance issues, and there’s usually someone on-site to handle those requests on your behalf.

When you own a home, though, those responsibilities fall on your shoulders. That means making repairs yourself, finding contractors and repair professionals for the projects you can’t DIY, and paying for all those repair services as well.

As Hourigan explains, “Buyers not only endure the cost of a monthly mortgage payment, but they must also cover the costs of repairing, maintaining, and insuring the property, as well as utilities and property taxes as part of their monthly budget.”

If you do opt to buy, you’ll need to have a maintenance fund saved up. This will keep you from having to use credit cards or dip into your retirement to get by. Generally speaking, financial pros recommend having at least 1% to 4% of your home’s value stowed away for repairs and maintenance every year.

5. What best suits your finances?

Finally, take a minute to consider your budgetary needs as a household, too. Is it most important for you to minimize your monthly payment and have more cash flow right now? If so, renting might be the way to go — at least for the time being.

On the other hand, if it’s better to have payment stability and protection from future payment increases, then buying a house with a fixed-rate mortgage may be the better option. Both approaches have their time and place.

If you’re not sure which choice suits your financial situation best, talk to a financial advisor. They can help you review the full gamut of options, as well as how each one may impact your finances, both now and down the line. You should also consult a local real estate agent to better understand the costs you’d face when buying or renting a home in your specific housing market, as home and rent prices can vary quite a bit nationwide.