Deciding whether to rent or buy your first home can be exciting and overwhelming.

There are many factors to consider when making this choice. While both options have pros and cons, one may be better suited for you and your needs. We want to provide you with as much information as possible, so you can make an informed decision and feel safe in your new home. Below, we discuss factors to consider during this process.

Current Market Conditions

An obvious factor to consider is the current state of the economy and housing market, but not all cities are created equal. Understanding your local housing market is just as important. 

Current Listing Prices

One way to research what’s going on in your area is to go to any real estate website, plug in your search criteria, and filter the results for “rent” and then for “sale”. You can then compare the current prices and the areas where they differ. Having a basic understanding of current list prices will get you to a good starting point for knowing what you can and can’t afford. 

Current Mortgage Rates

Mortgage rates fluctuate based on the health of the economy. For information about current mortgage rates, visit the Freddie Mac website. This website will provide you with a panoramic view of mortgage rates; how they have changed over the years; and where they stand today. While we don’t expect you to analyze data, knowing how quickly mortgage rates have increased and by how much in the last few years can give you an idea of our current market. Having a general understanding can help you decide whether to hold off on buying a house until rates drop or to go ahead and bite the bullet. At the very least, knowing this information can help you decide if you’re ready to talk to a realtor.

Your Personal Finances

No matter the current state of the economy, understanding your own financial situation will be a leading factor to consider when deciding to rent or own your home. You don’t have to save every receipt and balance every checkbook to understand your finances. When buying a house, lenders typically look at a few factors.

Your job status

Most mortgage lenders require you to have held a job for at least two years to be considered for a loan. They want to know you have a stable income and can make monthly payments on time. There are always exceptions to this, so if you recently started a new job, don’t let this deter you from the idea of owning your own home. 

Your credit score

Like it or not, credit scores are like shadows that follow us forever. There is a myriad of ways to build your credit score. Our Money Management course can help you understand the ins and outs of credit, and it offers resources to help you get to a place where you feel comfortable. If you have low credit, you can possibly have someone co-sign your loan, or it may be best to rent until your credit score has improved. 

Your Savings

Whether renting or buying a home, having money in savings is always a good idea. If you’re wanting to purchase a home but you haven’t held a job for two years, then lenders will sometimes look at your savings. If you decide to rent, oftentimes landlords will offer a monthly discount for those who pay more upfront, so having enough savings to do that can help in the long run.

Future Plans

Considering your future plans is important. If you intend to live in the house you purchase for a minimal amount of time, buying a house may not be for you, unless you plan to use it as an investment, which we discuss further in this blog. In that case, renting could be a good option. You can find a place to rent for the time period you desire, and when the lease is up, you are free of commitment. If you are already planning to plant your roots and settle down, homeownership could be the right option for you.

Real Estate Investments

Even if you don’t plan to plant your roots, purchasing real estate could be a good option. Depending on the market conditions, it may be a fine time to purchase a home, live in it until you’re ready to move, and either rent it out or sell it when the market improves. Renting a home will not give you a return on your investment.

Hidden Fees

There are hidden fees associated with renting and owning a home. Understanding what to expect can help you decide the best route for you to take.

Hidden Rental Fees

Sometimes landlords will require additional fees like pet fees or the first and last month’s rent. If you have pets, it can sometimes be difficult to find a landlord who will accommodate them. Lawn maintenance does not always come with your rental agreement, so make sure to consider the price of that if necessary.

Hidden home ownership fees

Homeownership also comes with many hidden fees. Property taxes, maintenance fees, home insurance, HOA fees, and electric, plumbing, and roof repairs are all factors to consider when deciding to purchase a home. Make sure to subscribe to our newsletter, because later this month we dive deeper into more detail about expenses to consider with home ownership. 

Ability to Maintain a House

Just as there are hidden expenses associated with home ownership, there are hidden responsibilities too. When making the decision to own or rent your home, consider your ability to maintain the property. 

Renting Maintenance

A perk to renting is that whenever there is an issue, you have the ability to call your landlord. They will either come to fix the problem or send someone else to do it without charging you anything. Sometimes, however, it can take longer to fix a problem than it might if you were in charge!

Home Ownership Maintenance

When you own your home, you do not have the luxury of calling a landlord. Surprise maintenance and repairs are inevitable. Ask yourself if you have the skills needed to change a light bulb, change your air filter, de-clog the toilet, fix a leaky faucet, or treat moisture in the basement. If not, can you afford to hire someone to come fix the problem? Do you have time to coordinate with people to do that?

Renting vs. owning your first home

From a comprehensive understanding of your current financial situation to a decent grasp of the current housing market and economy, there are many factors to consider when searching for your first home. Even if you don’t think you meet the qualifications for homeownership, we encourage you to do the research to find out. There are always exceptions and tools to help you get to a place where you can purchase a home. You can start by taking one of our home-buying and financial education courses. Upon completion, you will have access to free home-buying counseling and special financing products. Whether you decide to rent or purchase your home, make sure you do the research so you can make an informed decision for yourself and your family.