Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Should you rent or buy a home? Ask yourself these 3 questions

Should you rent or buy a home? Ask yourself these 3 questions

Deciding whether to rent or buy a home can have you talking yourself into financial circles.

"Take advantage of low mortgage rates and build equity!," your "buy" brain says. "Have flexibility and keep your costs of getting in and out low!," your "rent" side says.

Ultimately, the decision comes down to your financial fitness, how long you plan to live in the home and what your cash flow looks like.

While the number of home purchases reached a 14-year high in 2020, prices also went up considerably. Meanwhile, with so many people leaving major cities, landlords have been left in the lurch, and that has translated into some attractive rental deals.

Ask yourself these three questions to find out whether renting or buying makes more sense for you.

1. Are you financially fit?


The first step is to figure out if buying is even an option.

The decision between renting or buying is less about home prices or rents and more about whether you're ready to be a homeowner. What does your savings look like after a down payment is taken out? What is your credit score?

Andrew Dressel, a financial planner with Abundo Wealth in Minneapolis, likes people to have six months of expenses saved up in an emergency fund, $10,000 in cash to cover closing costs and moving expenses, and a credit score of 720 or higher.

"The emergency savings is of high importance and the 720 credit score has more wiggle room," he said.

In addition, the overall cost of owning the home, including the mortgage and utilities, taxes, maintenance of appliances and the yard and the expense of everyday wear and tear should not exceed 40% of a person's take home pay, he said.

"They need to also make sure they are not sacrificing their retirement or other goals just to own a home right now," Dressel said.

Leo Marte, a certified financial planner with Abundant Advisors in Charlotte, North Carolina, said people should also strive to be debt-free before buying a home.

"If you are not financially ready, paying rent is essentially buying patience and insurance against homeownership costs," he said.

2. How long will you live there?


If you only plan to live somewhere for two or three years, experts recommend renting. Especially now.

"If you are in a city and need to stay there, now is a great time to continue to rent and get more for your money," said Jay Abolofia, a certified financial planner with Lyon Financial. "People are able to rent in the city for dramatically less because other people have fled and landlords have had to drop their rents."

If you're feeling overwhelmed or rushed by purchasing in some hectic markets with low inventory, he said, renting is not a bad place to land, if it's only for a year or so.

He dismissed the sense of urgency many potential buyers are feeling to lock in mortgage rates at their current record lows, saying that interest rates and home prices often have an inverse relationship.

"When interest rates are lower, that puts upward pressure on housing prices," he said. "Just because interest rates are low doesn't mean it is a good time to buy and higher interest rates doesn't mean it is a bad time to buy a home."

But, Abolofia said, it is always a good time to buy if you're planning on staying there for a while.

"The longer you're going to stay, the more it makes sense to buy," he said.

Once you've determined your estimated time in this home, cross check yourself by asking if you're being too conservative about how much house you should buy, said Leonard Steinberg, an agent at Compass in New York.

"You should be conservative enough that you can sleep at night and eat," said Steinberg. "But many people are too conservative."

He said he often sees people buy homes that are too small and, after a few years, they realize the space isn't working for them.

"Now they have the costs of selling and buying again," he said, which includes closing costs, inspections, appraisals and realtor's commissions. "Moving a lot is expensive."

3. What are your monthly payments?


There is a certain amount of money you will need to buy a home, complete the transaction and maintain it, and there is no sense in rushing into homeownership before you can comfortably cover those costs.

"If you can afford the mortgage on a monthly basis, can maintain an adequate emergency reserve and are at the right point in life, go ahead and buy," said Noah Damsky, a chartered financial analyst with Marina Wealth Advisors in Los Angeles. But, he says, do the math first.

Damsky recommends that your monthly mortgage payment should not exceed 35% of your gross income. But that is the upper end. Other models are more conservative and suggest 25%, in order to keep your debt-to-income ratio lower. A middle-ground recommendation says you shouldn't put more than 28% of your monthly gross income toward your mortgage payment.

Also consider what you can afford upfront.

While traditionally buyers are encouraged to purchase a home with a 20% down payment, Damsky said, it could be advantageous to accept a larger mortgage balance with a lower down payment since mortgage rates are currently below 3%.

"I encourage clients with less than a 20% down payment to purchase a home if they can obtain mortgage insurance at less than 0.2% per year and can maintain six months of emergency reserves after the purchase," said Damsky.

And while some potential buyers may look forward to the tax benefits of homeownership -- including deducting mortgage interest, property tax payments and other expenses from their federal income tax bill -- Damsky cautions not to go overboard.

"I try to temper their expectations by explaining that the tax benefits will often be substantially offset by a roughly 1% annual maintenance cost."

And they should be warned: The out-of-pocket costs of caring for a home could be even more, said Matt Hylland, a financial planner at Arnold and Mote Wealth Management in Cedar Rapids, Iowa. He advises homebuyers to budget 2% to 3% of the home's value to cover upkeep and maintenance.

"Making sure you find a monthly payment that you can afford is important," said Hylland. "But don't forget to add to that other expenses you will face as a homeowner."

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Trump Called Viktor Orbán: "Why Are You Using the Veto"
Horror in the Skies: Plane Engine Exploded, Passengers Sent Farewell Messages
AI in Policing: Draft One Helps Speed Up Reports but Raises Legal and Ethical Concerns
Shame in Norway: Crown Princess’s Son Accused of Four Rapes
Apple Begins Simultaneous iPhone 17 Production in India and China
A Robot to Give Birth: The Chinese Announcement That Shakes the World
Finnish MP Dies by Suicide in Parliament Building
Outrage in the Tennis World After Jannik Sinner’s Withdrawal Storm
Class Action Lawsuit Against Volkswagen: Steering Wheel Switches Cause Accidents
UK Government Tries to Sue 4chan for Breaching Online Safety Act
Dogfights in the Skies: Airbus on Track to Overtake Boeing and Claim Aviation Supremacy
Tim Cook Promises an AI Revolution at Apple: "One of the Most Significant Technologies of Our Generation"
Are AI Data Centres the Infrastructure of the Future or the Next Crisis?
Miles Worth Billions: How Airlines Generate Huge Profits
Cambridge Dictionary Adds 'Skibidi,' 'Delulu,' and 'Tradwife' Amid Surge of Online Slang
Zelenskyy Returns to White House Flanked by European Allies as Trump Pressures Land-Swap Deal with Putin
The CEO Who Replaced 80% of Employees for the AI Revolution: "I Would Do It Again"
"Every Centimeter of Your Body Is a Masterpiece": The Shocking Meta Document Revealed
Character.ai Bets on Future of AI Companionship
China Ramps Up Tax Crackdown on Overseas Investments
Japanese Office Furniture Maker Expands into Bomb Shelter Market
Intel Shares Surge on Possible U.S. Government Investment
Hurricane Erin Threatens U.S. East Coast with Dangerous Surf
EU Blocks Trade Statement Over Digital Rule Dispute
EU Sends Record Aid as Spain Battles Wildfires
Beijing is moving into gold and other assets, diversifying away from the dollar
China Requires Data Centres to Source Majority of AI Chips Locally, For Technological Sovereignty
Escalating Clashes in Serbia as Anti-Government Protests Spread Nationwide
Category 5 Hurricane in the Caribbean: 'Catastrophic Storm' with Winds of 255 km/h
Trump Backs Putin’s Land-for-Peace Proposal Amid Kyiv’s Rejection
Digital Humans Move Beyond Sci-Fi: From Virtual DJs to AI Customer Agents
YouTube will start using AI to guess your age. If it’s wrong, you’ll have to prove it
Jellyfish Swarm Triggers Shutdown at Gravelines Nuclear Power Station in Northern France
OpenAI’s ‘PhD-Level’ ChatGPT 5 Stumbles, Struggles to Even Label a Map
Zelenskyy to Visit Washington after Trump–Putin Summit Yields No Agreement
High-Stakes Trump-Putin Summit on Ukraine Underway in Alaska
The World Economic Forum has cleared Klaus Schwab of “material wrongdoing” after a law firm conducted a review into potential misconduct of the institution’s founder
A Computer That Listens, Sees, and Acts: What to Expect from Windows 12
Bitcoin hits $123,000
Southwest Airlines Apologizes After 'Accidentally Forgetting' Two Blind Passengers at New Orleans Airport and Faces Criticism Over Poor Service for Passengers with Disabilities
United States Sells Luxury Yacht Amadea, Valued at Approximately $325 Million, in First Sale of a Seized Russian Yacht Since the Invasion of Ukraine
Russian Forces Advance on Donetsk Front, Cutting Key Supply Routes Near Pokrovsk
It’s Not the Algorithm: New Study Claims Social Networks Are Fundamentally Broken
Sixty-Year-Old Claims: “My Biological Age Is Twenty-One.” Want the Same? Remember the Name Spermidine
Saudi Arabia accelerates renewables to curb domestic oil use
The Billion-Dollar Inheritance and the Death on the Railway Tracks: The Scandal Shaking Europe
World’s Cleanest Countries 2025 Ranked by Air, Water, Waste, and Hygiene Standards
Denmark Revives EU ‘Chat Control’ Proposal for Encrypted Message Scanning
Perplexity makes unsolicited $34.5 billion all-cash offer for Google’s Chrome browser
Cristiano Ronaldo and Georgina Rodríguez announce engagement
×