Rent or Buy Your Home

Historically rental houses were dilapidated, yards were unkept, pets destroyed the interior and exterior of the homes where you could never get the fleas and urine removed, the carpets sanitized and the bathrooms free of fungus. That profile has changed abruptly as Invitation Homes, Starwood/Waypointe, Colony, American Homes 4 Rent and others have over-rehabbed to set a standard close to the condition of new homes for their rental house brands. In so doing, their houses command higher rents and consistent rent increases thus pulling the condition of rental houses up for even the small landlords.

To decide whether to rent or buy you start with – how much have you saved for a down payment? Typically it is 20% of the purchase price though new loan programs at 10% or even lower are starting to emerge. Next, will your mortgage payment plus utilities be 30% of your gross income, a threshold viewed as critical by lenders. Recent regulatory changes have allowed this percent to creep higher but still under 50%, a challenge for borrowers with student loans. Next how long will you stay in the house, the longer the more logical it is to buy. The 6% commission cost and closing fees eat into an equity gains so five years is recommended as the minimum stay. Next what is your credit score with 650 being a cutoff – below your loan approval chances diminish and above they improve. Next have you left out any costs of home ownership like insurance, utilities, property taxes. Finally is the location ideal, more likely if all of the above conditions are met, you should buy since you will be rewarded for the location when you sell. If the location is less than ideal you should seriously consider renting. In sum, there is no right answer for everyone. Your personal financial situation, likely move and location all are relevant.