Buy vs. Rent

1. How often do you expect to move in the future?

  • More than once a year
  • Once every two years
  • Not for at least 5 years.

If you expect to be moving a lot (every couple of years or more) then you probably shouldn’t buy your own home. Every time you buy or sell a home you incur significant costs (selling commissions alone average 6 %). Unless you get lucky and the value of the home you purchased goes up by at least 10 %, you’ll be losing money.

2. How stable is you employment situation?

  • Very stable
  • Probably stable
  • Not stable at all

If your employment is not stable, you probably shouldn’t be considering buying your own home. Home ownership requires a number of regular payments – the mortgage, property taxes, utilities, maintenance, insurance, etc. Missing any of these payments can trigger dire consequences for a homeowner. Until your employment is stable, your answer to the renting vs. buying a house question should be “renting”.

3. How much can you afford to pay for housing?

To answer this question you need to prepare a detailed monthly household budgeting plan. As a guide, most mortgage companies will only allow your housing costs to equal 33% of your gross income. Housing costs may include your rent or mortgage payment, property taxes, utilities, and 50% of condo fees if applicable. In addition, if your total debt servicing costs (housing costs plus all of your other monthly debt payments) exceed 40% of your gross income you won’t qualify for a mortgage.

As a guide, how much rent are you paying now? What is the maximum amount you are willing to pay?

4. Are you able to save money every month?

Once again, we need to take a look at your budget. As a renter, are you able to save money every month? How much do you currently have in your savings? If you buy a home its important to have some money set aside for “emergencies”. You may not be able to save as much money as a homeowner as you did when you were renting, but its important that you leave some room in your budget to save something. If you have to stretch your budget to the point that there is no room for any savings, you are probably stretching your budget too far and you should definitely reconsider your home purchase.

5. Is it important to you to own your home?

Some would argue that this is the first question you should ask yourself. Another way to phrase it might be, “how badly do you want to own your home?” Home ownership, like everything else, is a matter of choice. Only you can decide whether or not home ownership is important to you. People born in the ’60s or earlier, had home ownership drilled into them – to be a real person you had to own your home. Today, that’s not necessarily true.

Take a look at your budget (again). If home ownership is important to you then you may want to re-assess how you spend your money every month. For example, perhaps your budget includes going to the movies once per week. If you really want to buy that home, you may have to change your spending habits and only see one movie a month. Maybe you have to quit that health club, or buy fewer trading cards.

The point we’re trying to make is that you have the ability to decide what’s important and what’s not. If buying a home is important to you, you may need to limit some of the other things that you do.