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When Should You Buy, and When Should You Rent?

February 1, 2017

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In 2015, only 32 percent of homebuyers were first-time purchasers, according to NPR. 

After the housing crisis in 2008, many people became skeptical of buying homes, but now that the mortgage industry appears to be making a comeback, prospective owners are beginning to wonder whether purchasing a home is an option again.

But before consumers make a decision they need to know whether they’re better off renting or if they would benefit more from purchasing real estate.

Here are some things to consider before taking out a loan or signing a lease on a new residence:

When should you buy?

There’s no doubt buying is better for people who are ready to plant roots and stay in one place for a while. While rent payments never end, once buyers pay off their mortgage they will completely own their house. In addition, as homeowners renovate their homes, its value will go up, which means homebuyers can make money off of their home if they decide to sell it after many years. 

In 58 out of 100 metropolitan areas studied – such as Miami, Philadelphia and Houston – it’s comparatively cheaper to buy property than it is to rent, according to a report from Trulia. Another factor potential buyers should consider is fixed mortgage rates. Often homebuyers are able to get a fixed-rate mortgage, which locks in a low interest rate for the duration of their mortgage payments. Depending on the rate,purchasing a home might be cheaper than paying rent, which has a tendency to go up every year or two, Wisebread reported.

When should you rent?

Although buying is often thought to be a better long-term option, there are many reasons to rent as well. Buyers who are not in a good position to take on a large loan should stick to renting property. Making smaller monthly rent payments is a solid option for anyone until they’ve built up enough income to afford larger mortgage payments. 

Renting is also a much better option for buyers who aren’t planning to settle down in one location for a while. According to The New York Times, it takes approximately 15 years for home values to start appreciating. This means that people who sell their homes before this benchmark will most likely not be able to recoup their investment from selling their house. People who think they will be on the move in the near future will minimize their losses by paying a smaller monthly rent payment than paying off a mortgage, the source noted.

Those browsing the real estate market should also consider the cost of buying a home versus renting in their particular neighborhood. Whether it’s cheaper to rent or buy might vary drastically between neighborhoods in the same city.

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