It is the age-old question of whether to rent or buy a home. Thanks to one of the few positive financial benefits of the COVID-19 pandemic, answering that question just got a little easier.
Thanks in large part to try to bolster a floundering economy due to COVID-19, home mortgage interest rates are at historic lows. If you’ve been thinking about becoming a first-time homeowner, now may be the time to take the plunge and take advantage of today’s lower cost of owning property. Still, the question of is it cheaper to rent or buy your home remains.
According to recent surveys, given the current market conditions, buying a home is cheaper than renting in most cases. A recent “2021 Rental Affordability Report” found that you can save money by owning a home in nearly two-thirds of the country. The report, prepared by ATTOM Data Solutions, compared the cost of owning a three-bedroom home to the cost of renting a three-bedroom in various housing markets. On a broad scale, owning a home was cheaper than renting.
However, it’s important to note there are cases where homeownership is not cheaper than renting. Specifically, the report found renting was cheaper than buying in most of the country’s most densely populated areas.
The answer to whether it makes more financial sense to buy a home or rent is largely going to depend on where you want to live and your future plans. In addition, your personal financial circumstance can play a major role. For example, if you have bad credit, or a less than steady source of income, it can significantly impact your ability to get a mortgage and your interest rates.
Still, the two of the key factors regarding “rent or buy” are where you want to live and how long you plan to live there. As a rule of thumb, home buying usually makes sense if you plan to stay in the area for at least five years. In areas with a high cost of living like New York City or San Francisco, it will almost always cost more to own than to rent, regardless of interest rates.
Renting or buying each has its relative advantages. With homeownership, you are building wealth by earning equity in your home. On the other hand, if you are living paycheck to paycheck, renting may be a good idea. The landlord is responsible for any major unexpected repairs to the property.
Ultimately, whether to rent or own is as much of a personal and lifestyle decision as it is a financial one.