Renting or Buying a Home: What to Consider in Your Discernment Process
“By wisdom a house is built, by understanding it is established” (Proverbs 24:3).
Turn on the news, and you’ll hear pessimistic and defeating reports about inflation and interest rates. Even the mention of the price of eggs seems to evoke a worrisome economic outlook. Should these numbers dictate your decision to rent or to buy a house? Not necessarily. Both renting and buying come with advantages and disadvantages no matter what the current market trends are, and the ultimate answer really boils down to your current housing needs, goals, and long-term plans.
Renting: The Pros and Cons
Renting provides flexibility for people looking for short-term housing needs: Leases have defined terms of cost and duration, and once the lease is up, there is no obligation to stay in the area. Renters are free to move without the burden of selling a home. Additionally, home maintenance is not the tenant’s responsibility, which is appealing if your budget is tight and you can’t afford to pay for general upkeep.
Unfortunately, renting does leave many things out of your control. Renters are at the mercy of their landlords when it comes to increases in rent at the end of a lease. Additionally, although the cost of repairs fall on the shoulders of the landlord, their timeframe may mean you have to wait a long time for updates to your living space. Customizing and adding their own flair to the building (like new paint colors) are typically not up to the renters either.
As a general rule of thumb, if you don’t plan on staying in your house for the long term, renting may be a good option. This is especially true if you move to a new area and are unfamiliar with the area neighborhoods and schools, or if you are unsure about establishing roots in one location.
Buying: Things to Consider
The greatest immediate challenge to buying a home is the upfront cost: Down payments, closing costs, taxes, and insurance add a considerable amount to your budget. However, buying a house can make sense financially in the long run. It can even be less expensive than renting.
Home values appreciate over time, unlike cars and other consumer goods. This means that homeowners can build equity: Over time, your home becomes worth considerably more than what you owe. According to the St Louis Federal Reserve, the median home sales price increased from $238,400 in 2012 to $454,900 at the end of the third quarter of 2022—nearly doubling in value over a 10-year period.
That cushion can be a significant financial asset, and it can become an important tool in your financial profile. You can borrow against it or make a significant profit when you are ready to sell. This is why many experts agree home ownership is a good hedge against inflation.
Furthermore, homeownership provides non-financial benefits, such as the community connection that comes with putting down roots.
What About High Interest Rates?
While it is true that current rates are more than double their all-time low of 2.65% (in January 2021), record-low rates were largely dependent on COVID, when both the government and the Federal Reserve implemented policies to keep the halted economy afloat. Those measures were just as unprecedented as the pandemic itself, and rates changed the more society came out of isolation. If we take a step back and look at rates over the long term, they’re still below the historic average.
That being said, if the news reports of interest rates leave you feeling cautious, remember that you’re not stuck with your mortgage rate forever. If rates drop significantly, you can always refinance and save money on your monthly payment.
In general, a healthy credit profile and strong finances put you in a good position to buy and start building equity. If homeownership would improve the quality of your life and you are financially ready, then it might be time to explore your options. A trusted mortgage loan officer can help you take the right steps so you can be ready to make a home purchase with knowledge and confidence.
Kimberly Lynch is a Virginia-licensed mortgage loan originator (NMLS #2444182) for GO Mortgage. As a wife and mom, she deeply understands many families’ desires (and hesitations) surrounding home ownership, and is passionate about helping others navigate the complex mortgage process. She enjoys a strong cup of coffee in the morning, a leisurely run in the late afternoon, and a good book in the evening. Kimberly is also the fundraising chair and board member for Phoenix Project, a local domestic violence agency. She resides in the Shenandoah Valley of Virginia with her husband and seven (yes, seven!) children. You can follow her on Facebook and Instagram.