Should I rent or should I buy? Sounds like the lyrics to a Weird Al parody of a song by the Clash. The answer is quite simple… oh wait, no it’s not. Fortunately, and my wife can attest to this, I have all the answers.
The trick is to know the facts. The first question: Can you qualify for a loan? If not, then you’re renting. While there are 100-percent financing programs available (VA for one), in most cases you’ll need at least 5 percent of the purchase price for a downpayment. There are exceptions, but if you’re really stretching, you might want to rent for a couple years and stuff that mattress.
If you do qualify to buy, then look at the monthly cost of a mortgage versus a lease on similar properties [See facing page]. These days, the monthly nut is often less on a purchase, assuming you look at homes with similar square footage and amenities. I’m not going to get into tax benefits, cost of owning and other variables, because there are too many. Obviously a fixer upper will skew the numbers more than a new build. There are countless “rent vs. buy” calculators online.
Another key question: How long do you plan to stay? Many first-time buyers upgrade to a new home in a few years, whether due to procreation or relocation or something else. Will you (can you?) keep your first home to live in for many years or as an investment? If not, you’ll probably lose money. It costs money to sell a home. If home prices go up 5 percent in three years and it costs you 7 percent to sell, that’s no bueno.
There’s something to be said for the whole “pride of ownership” thing. But wherever you live, excluding mom’s basement and possibly some cults, you have to pay money. If the numbers are close and one feels more right than the other, you’ll probably be OK.
Related: Cost Comparison: Rent vs. Buy