How to Tell If You Should Be Renting or Buying a Home

For most people, buying a house is up there with graduating college and getting married on the list of Important Life Accomplishments, and it makes sense -- once you lay down that chunk of cash, you've committed to adulthood. But symbolic as it is, owning a home might not be for everyone, even if you're a mom and you have a big, honkin' family in tow.

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But how can you tell? It's a tough call, and one that really shouldn't come down to norms or what your mother-in-law expects. We asked Natasha Bishop, director of strategic alliance and business development at Apprisen, for her advice.

Bishop said that while it really is case by case, there are some factors that will always come into play. Here are the four biggest questions she would like to see everyone ask:

  1. Is there a potential for relocation in a short period of time?
  2. Do you have the financial resources or inclination to handle maintenance and repair (roof, water heater, appliances, windows, lawn garbage, septic pumps, etc.)?
  3. Do you have a stable source of income?
  4. Do you understand the responsibilities of home ownership (property taxes, maintenance, etc.)?

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Bishop also says that while kids aren't one of the big questions, moms should look at the home-owning process a little differently.

"Stable housing is always better for kids, but it doesn't mean you need to own the home," she says. "It may make sense to rent if you will have decreased time for house work or maintenance due to work schedules and kids' activities."

She also reminds us that buying is a semi-permanent decision, and one that should stick with you for years. "Be sure to do your homework on neighborhood crime, schools, and culture before committing to buying a home."

In terms of financing home-ownership, Bishop says that once you're moved and settled, 35 percent is a good benchmark: If you can keep your housing expenses (so: monthly mortgage, insurance, taxes, association fees, and maintenance) to less than 35 percent of your income, buying might be your best bet. 

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It sounds simple like that, but Bishop also notes that most people aren't realistic about the cost of maintenance and repairs. "You can reasonably assume that you are going to spend between one and three percent of the home value on maintenance yearly," she explains.

But all that still somewhat cuts away from biggest financial toll of home-ownership, which, of course, is the actual buying itself. In order to get the best deal in terms of loans and mortgages, Bishop says you need to have a good chunk of cash saved and ready to go.

"Typically, it's 20 percent down to avoid PMI," she explains. PMI, or private mortgage insurance, is a type of mortgage that protects the lender instead of you. You don't really want one. And if the median cost of a single-family home in the US is about $270,000, that means that you'd need to show $54,000 in the bank -- plus, Bishop says, an extra $4,000 to $5,000 in pocket for closing costs.

If you don't have that much, not all hope is lost. "There are many lenders who do not require 20 percent anymore," Bishop says. "There are some special programs that accept as low as three percent down payment. There are lots of down payment assistance programs out there, particularly for first-time home buyers."

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Even so: We're talking about a lot of movable cash and we're talking about a few years' commitment to make the purchase worth it.

"Generally, you should plan to stay in the house for at least five years," Bishop explains. "Fees associated with closing costs, marketing conditions, and moving expenses can all affect whether the home will 'pay for itself.'"

If you want to buy but don't want to commit, Bishop says that renting -- both traditionally and via services like Airbnb -- is a good option to give you some more flexibility and some more pocket cash.

With all these modern options, buying a home is arguably more flexible (if more expensive) than it used to be. But Bishop adds one piece of key advice: "Owning a home is not every American dream," she says. And she's right. You might not have the money or you might just not have the inclination, and that's fine -- renting isn't any better or worse. It's all about what's right for you and your family.

 

Image via iStock.com/Portra

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