The decision of where to live, and whether to rent or buy a home, is undoubtedly one of the biggest decisions that most of us will make in our lives. I’ve done some of both. I lived in probably eight or ten different rented apartments/homes throughout college and grad school, and then went on to home ownership shortly out of grad school. Mr. CMF and I have now owned four different homes together, in three different states. Yes, we move a lot! We currently own two homes, our primary residence and a rental home that brings in a modest amount of rental income every month.
Note: This post contains affiliate links.
Those of you who are regular readers of this blog know that we have another move planned this spring, to the place that we hope will be our forever location. We have now been together almost 13 years (married ten) and have lived in five different cities during that time. This will be our fifth move together in April. Most of our moves over the years have been because of school and jobs. However, at this point we are done moving for school, and we have both secured jobs in our new city that we are really excited about. We sincerely hope that this will be our last long distance move!
So I guess you could say that we have a lot of experience when it comes to things like finding a new place to live, moving, selling our home, etc. We kind of know about how far in advance we have to start looking for a new place, what our must-have list includes, etc.
But we ran into a snag with this most recent move a couple weeks ago when we traveled to our soon-to-be new city and spent a few days looking at houses to buy. We could not find what we were looking for; there just was not a single home that we were really excited about that had a price in our range. And since we hope to live here for the rest of our lives, we really wanted to get this right and not have to move again in a few years.
Considering All Options
We went back and forth over the options. 1) Stretch to buy the one more expensive home that we looked at that had everything we wanted (and more), but a price tag that was more than we really felt comfortable spending. 2) Buy a home that we felt “ok” about, but that we were not that excited about. Or 3) Rent.
We nearly immediately ruled out #2 as an option. We just could not justify dropping six figures on a house that we did not really want to live in that badly. So that left us with #1 and #3 as options. We were sooooooo sorely tempted to buy the expensive house. It really was amazing, and had everything we wanted and more. We checked with our lender, who pre-approved us for the amount that we would need to borrow to buy the more expensive home. By most people’s standards, we could technically afford it.
But… if we could afford it, why was there a nagging anxiety in the back of both of our minds when we thought of the higher mortgage payments, higher cost of upkeep, etc.? What if someone gets sick or can’t work? What if one or both of us hate our jobs there and we do the unthinkable and move again in a few years? What if life happens?
You can probably guess where this is going, right? Yep, we chose to rent. Ten years into our marriage and more than ten years since we thought we “graduated” to homeownership, we are going to be renters again.
We are actually kind of excited about it and now find ourselves gleefully exclaiming to each other things like, “Hey, won’t it be awesome if the furnace breaks and it’s not our problem?!?” “Won’t it be fantastic when the basement floods and someone else has to pay to clean up the mess?!?” Both of those things are super expensive problems that we have personally dealt with as homeowners.
We don’t plan to rent forever, probably only a year or two until we hopefully find our forever home. Which brings me to the point of this post- how, exactly, do you go about deciding whether to rent or buy?
How to Decide Whether to Rent or Buy a Home
1) Think about how long you plan to stay there
First and foremost, you need to consider how long you plan to be in the home. Most experts say that you should not buy a home unless you KNOW that you will be in the home for at least 3-5 years, but many will say longer, like 5-10 years.
2) Figure out if you have enough for a down payment on a home
In my opinion, it’s not a good idea to buy a home unless you can put at least 20% down at the time of purchase. Less than that and you will have to pay PMI (private mortgage insurance), which is an expense that can be avoided if you simply wait until you can afford a 20% down payment.
3) Consider whether your credit is good enough to get a home loan
As a general rule, the higher your credit score, the better the mortgage interest rate you will be able to qualify for. If you are unsure what your credit score is, you can check it using a site like com. You can also go to annualcreditreport.com to order your free credit reports, and you can do this once per year. However, you do not usually receive your actual credit score there, just the reports.
4) Determine if you can afford house upkeep
A lot of things can go wrong in a home at any given time. Furnaces break, air conditioners break, refrigerators break, and the list goes on and on. You need to have a solid emergency fund (outside of your 20% down payment) before you consider buying a home. The reason is simple: because as a homeowner the odds of “emergencies” occurring in your life will increase simply because you own something so expensive, with so many expensive components.
5) Determine if purchasing a home will interfere with your other financial goals
This is one of the biggest reasons why we ultimately decided to pass on the expensive home that we looked at. Because although we loved it, we also have goals to finish paying off our student loans by this summer, save for our daughter’s college education, and maybe adopt again in the future. Tying up a larger chunk of our monthly income in a larger mortgage payment would have an impact on the amount of money that we have every month to put toward other things.
We were ultimately concerned that buying a home that expensive would put a strain on our monthly budget and possibly prevent us from achieving our other financial goals. We’ve worked so hard to create a budget for ourselves that is both workable and livable, and we didn’t want to wreck all that in one single purchase. By the way, if figuring out a budget is an issue for you, my favorite FREE online resource to help you manage/budget your money (and plan for retirement) is Personal Capital (review here).
At the end of the day, I think the decision to rent or buy a home is a very personal one, and should be carefully considered before jumping into either! There is no one-size-fits-all answer here. It just depends on what is right for you and your situation.
Have you ever made the decision to go back to renting after being a homeowner? Can you think of other factors to consider when deciding whether to rent or buy?
CMF’s favorite FREE money management tools!
Some of the best online tools out there for money management are at Personal Capital, and the awesome news is that they are all FREE! Cash flow tracker, 401(k) fee analyzer, investment checkup, net worth monitoring, and many more! I’m a net worth junkie, so the net worth monitor is my favorite. Check out my Personal Capital review here, or click here to check out all the awesome tools for yourself!
Photo credit: dunga/Depositphotos.com