Rent or buy? Here’s how
to decide

We’re all familiar with the good ol’ American dream: find a job, get married, buy a house, have kids, and eventually retire. For generations, homeownership has been viewed as the gateway to adulthood, something you have to do before you can reach major life events like starting a family.

But times have changed. While your grandparents might have bought a home in their 20s, today’s average first-time buyer is in their mid 30s. This is because millennials face a laundry list of financial challenges that boomers simply didn’t have to deal with, such as historically high home prices and massive amounts of student debt. So while homeownership is still the best long-term choice for most people, today’s homebuyers need to think a bit more carefully about timing and spend longer planning.

If you’re reading this, you’ve probably started asking yourself whether it’s time to become a real adult and get a mortgage. In fact, buying a house could very well be the perfect next step for both your finances and your happiness. But it’s not something you should rush into simply because you think you’re supposed to.

Here’s the truth: homeownership isn’t for everyone at every time. While buying a home is the biggest source of wealth for most Americans, it may not be the best decision for you right now – or ever! But the earlier you start planning, the better chance you have of making your homeownership dreams come true.

So how do you decide if or when to buy a home? Let’s break it down.

Is renting or buying better?

In the battle between renting vs. buying, it seems like every financial expert wants to give their two cents. You may have even seen multiple conflicting verdicts on which option is better. What gives?

What many of these opinions fail to consider is that no two first-time homebuyers are the same. It’s not cut and dried; there are advantages to both renting and buying a home. Let’s take a look at both sides.

The case for renting

Your expenses are predictable. Once you’ve paid your fixed monthly rent, all you need to cover are the utility bills. Homeowners need to budget carefully for not just a mortgage but also property taxes, insurance, and more.

You aren’t responsible for maintenance. If the refrigerator dies or your roof springs a leak, your landlord will cover the cost of repairs. As a homeowner, you’d be on the hook for those expenses.

You can enjoy greater flexibility. Most leases are for 12 months, at which point you’re free to move to a new place with relatively few costs. Buying a home involves a lot of up-front costs, and these only pay for themselves if you live there for at least five years.

Why buying makes sense

Your housing costs will remain stable over a longer period of time. Once you’re locked into a fixed-rate mortgage, not much can affect your monthly payment. A landlord can raise your rent every year to keep up with market prices; most major cities have seen rent skyrocket over 30% in the past decade.

You’re building equity. Part of your monthly mortgage payment goes towards ownership of the property, which you’ll get back when you sell the home as long as property values don’t go down.

You’ll get a break on your taxes. Mortgage interest payments are tax-deductible, which could save you a couple thousand dollars each year.

It’s yours. When you buy your home, you’re free to make it your own – bring on the DIY projects. There’s only so much you can do to a rental property, and even minor changes like painting a wall typically mean you’ll have to restore it to its original state before you move out.

Not sure if renting or buying is best for you? Here's where to start

It’s easy to see why buying a home can be attractive, but is it really the best decision for you? Here are a few things to think about as you weigh the options.

Plan to keep renting if…

Start thinking about buying if…
Your major motivator for buying a home is social pressure or emotional attachment to the idea of homeownership.
You understand that buying a home takes preparation and are okay with renting until you’re ready, whether that’s three months or three years from now.
Your income is unreliable or you have low job security.
You have a stable source of income, such as a regular paycheck from a job with good long-term prospects.
You’d spend substantially more on a mortgage, insurance, and property taxes than the monthly rent for a similar home in your area.
Rent prices are higher than (or equivalent to) home prices in your area.
You think you might want to move in the next couple of years.
You feel confident committing to at least five years at your new address.
You don’t have the time or resources to take care of a home.
You can dedicate time and money to regular home maintenance and repairs.
You’re currently working to repay significant amounts of debt, such as credit card balances or student loans.
You have little to no debt and manageable monthly payments on any debt you do have.
Your credit score is under 600.
Your credit score is over 740 (or you have a plan to get it there!)
You’d have to take money out of your emergency fund or retirement account to cover a down payment.
You already have some savings earmarked for a down payment and/or there’s enough wiggle room in your budget to start setting money aside.

Pro tip: Keep your options open

Even if you do decide to buy a home, it often takes months or years to prepare financially before you can make a down payment. 63% of millennials have $0 in their home savings fund, so no worries if you haven’t started putting money aside yet – but there’s no time like the present. It’s a good idea to start saving now even if you aren’t sure yet. Once you do finally find your dream home, you’ll be ready to move forward with confidence.

Keep reading: Here’s how you can start saving for a home today