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.
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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?
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Abigail @ipickuppennies says
I think too many of us forget the upkeep cost. I’d owned a house before this one, but I still vastly underestimated the cost of keeping our current house up. The other one had been kept in pretty good shape and was basically move-in ready. This place had older appliances and other issues. It’s been a huge drain.
There are days I definitely miss just calling the main office to fix something. We chose a home that we know we are okay living in forever. I’ve never understood the concept of starter homes so I think you made the right choice to hold off buying. Besides, now you can move without potentially immediately running into repairs. Get settled, then worry about finding a permanent spot.
That’s what we are thinking. We just could not justify dropping a ton of money on something that was not what we really wanted. And as you mentioned, renting definitely has its perks, especially when things break!
This is a decision that we go back and forth on. We currently rent, and feel a little guilty about it. But, we decided to wait until we could comfortably afford to buy something that we actually wanted. We are doing well with that decision and we are looking forward to buying our first home next year. Thank you for the list, it is pretty logical, but makes me feel a little better when I start getting itchy to get out of renting.
It sounds like you guys have made a good decision! We just think it will FEEL so much better to be living in a home that we know we can comfortably afford, and I think you would probably find that too. There are definitely pros and cons to both renting and home ownership, but in the end it all boils down to whatever is the best decision for you at that point in your life.
It is hard sometimes to decide whether or not to purchase a home or rent. Doing your research and weighing all the pros and cons sometimes is what you need to do. It sounds like you have made the best decision for you and your situation at this time. Thanks for sharing!
Thanks! I agree, there is no one-size-fits-all answer!
Brian - Rental Mindset says
#5 is the tough one for me. Living in San Francisco, even a home 30 minutes away is expensive. 1-4 are fine, but it would be tying up pretty much all of our money in our home. That is very risky.
I plan to rent my personal residence for quite a while, putting my money to work in rental properties in less expensive areas (the south and midwest). Then maybe at some point I’ll have so much money I can splurge on an expensive home!
Sounds like a solid plan 🙂
Emmy @ Club Thrifty says
I so wish we had rented more instead of buying. We bought at the peak of the market and are now underwater on our mortgage. Oh well, hindsight is 20/20.
Oh wow, I feel your pain. We also bought a house at the peak of the market. We ended up selling it a few years later for $30k less than we paid for it. Painful! But it felt great to be rid of it after we sold it 🙂
I love this post! So many bloggers are either team rent or team buy. It’s so refreshing to read about both sides from someone who doesn’t seem biased one way or the other.
For me, buying a home was the best thing that has ever happened to me but it really does limit my ability to be spontaneous with things. I can’t just pick up and move like I used to be able to do, there is a lot more planning that goes into it. But still owning a home feels like such an accomplishment to me.
We love being temporary renters. And we are SO glad that we chose to do it this way. We just found a home to buy that we LOVE, but we might not have been able to afford it if we had chosen to buy a “temporary” home instead of rent.
Hi Dee! I really like that you took such an analytical approach. I think the factors you mentioned are very important. For me, another important factor is the opportunity cost of buying vs. renting and a lot of that depends on where you live.
If you’re in a city with a high price to rent ratio, then financially it could make a lot of sense to rent then invest elsewhere, whereas in other cities you might be “throwing away money” by renting, as they say. There are cities in the US where it costs 550k to buy for the equivalent of $1000 in rent (i.e. San Fran), all the way down to cities where it costs 75k to buy for that same $1000 in rent (i.e. Detroit).
The NY Times has a great rent vs. buy calculator that helps factor in opportunity cost, along with some of the factors you mentioned here like how long you plan to stay, upkeep costs etc.
Nate, sounds like a great resource! Thanks for sharing!
These are some great tips and I agree with all of them! We have bought 2 homes, and are looking to move and buy our hopefully “Final and ideal home” in the next 3 years. It’s so tricky when you are “approved” for higher homes, but aren’t able to put the 20% down… that’s a really good rule. We’ve bought a home at the top what we got approved for, thinking we had side income from renters they weren’t calculating in… but have defiantly had a hard time keeping on top of the payments. We will be looking for a home in the lower range we are “approved” for and now looking to be sure we can put down 20% instead of only ten.
Sounds like an excellent plan for you guys! Thanks for stopping by!