To Rent or Buy? Which Makes Sense for You?

By Scott Morris

While owning a home is a fantastic accomplishment for anyone, it’s a commitment, responsibility, and no easy feat. Not only does it take a large investment of money, but it also involves a lot of smart financial moves and good decision-making to land the right home at the right time. On the other hand, with rent costs increasing and inventory low in many areas, home ownership can be enticing.

The right answer is going to be personal. So ask yourself the following questions to determine whether you should pursue homeownership or continue renting. 

Are You Settling Down for the Long Term?

Closing costs, real estate commissions, and other expenses that occur when selling a home (like repairs and staging) can add up to 15% of the sale of a home. This is why experts typically advise prospective home buyers to only buy homes if they plan on living in an area for a minimum of 5 years, as it is long enough to break even before selling the home. If you plan to live in your area for fewer than 5 years, it might be better to rent rather than own so you have the flexibility to move at a moment’s notice and not be tied down financially.

We recommend using this interactive calculator from The New York Times to compare renting versus buying given your unique budget.

What Can You Afford?

Figuring out what you can afford is very important in the home-buying process because you don’t want to go beyond your means.

Then you need to consider your monthly mortgage payments and utility bills, annual property taxes, as well as other expenses such as homeowners association fees, home insurance, and home improvements and upgrades.

We recommend using this affordability calculator to give you a rough estimate of what you can afford based on your current expenses and income. This resource can also give you a good idea of the home ownership journey.

But renting is not without its headaches either. This year alone, the national median rent has gone up by more than 11%. And if you’re renting a home, the booming housing market might result in your landlord deciding to sell when your lease is up or increase your rent. So while maintenance issues might not be your responsibility, you have less control over your living arrangements. Not to mention, every time you move, you need ample cash available to pay security deposits or move-in fees. 

How Much Do You Have in Savings?

To qualify for a 30-year conventional home loan, you will need to put down at least 3% of the price of the home. But to avoid private mortgage insurance (PMI), you’ll need a minimum of 20%. Mortgage insurance is typically 0.25-2% of the loan amount per year until you reach 20% of equity.

Let’s say you want to put 20% down and have enough in savings, but purchasing the home would wipe out your savings and leave you without an emergency fund. You might want to hold off on your home purchase until you’ve saved a bit more, or consider a lower down payment. Your emergency savings should be your top priority, as you will always need to be prepared for a rainy day whether you own a home or not. The rule of thumb for emergency savings is to have enough money saved up to cover 3 to 6 months’ worth of expenses. If your savings account has more than enough money to cover emergencies and your desired down payment, then go ahead with homeownership. If not, aim for the emergency fund first and then make a plan to save for a down payment.  

The Right Answer

Like most things in life, the right answer on whether you should rent or buy is going to be different for everyone. Your values, finances, and life situation will all factor into this decision.

Here’s how we can help. At SRM Real Estate Group, we start with what’s important to you, helping you determine the true cost of buying a home, developing a custom mortgage strategy, and providing flat fees and buyer rebates that save you thousands when it’s time to buy or sell. If you are thinking of buying a home, we’d love to guide you through the entire process so you can make empowered and informed decisions for your life and your family. Reach out to us at 818-262-3695 or connect@srmrealestategroup.com, or you can schedule a no-obligation introductory call online. We can’t wait to connect with you!

¹ https://www.ramseysolutions.com/real-estate/how-much-does-it-cost-to-sell-a-house

² https://www.ramseysolutions.com/real-estate/how-much-does-it-cost-to-sell-a-house

³ https://www.cnbc.com/2021/08/18/why-rent-is-about-to-go-up-again.html

⁴ https://www.investopedia.com/mortgage/insurance/

About Scott

After his son’s Type 1 diabetes diagnosis, Scott’s life took on new meaning. He created a purpose-driven business model to put people before profits. With each successful closing, he donates a portion of his earnings to his client’s preferred charity and to the Juvenile Diabetes Research Foundation.  Scott’s passion and innovative approach to real estate is found in the promise he makes to every client: when you partner with the SRM team, you’ll save money, time, and together we’ll change lives.

Scott Morris is the Founder and CEO of SRM Real Estate Group, a Los Angeles real estate and mortgage company that does things differently. To learn more about Scott, connect with him on LinkedIn. You can also watch his latest webinar to find out how to be the smartest seller on your block.