The first step in the process is to determine whether or not you have the financial means to purchase a home. Consider your ability to make a down payment, typically between five percent and 20 percent of the purchase price of the home as well as any closing costs, typically an additional five percent. The costs are most likely to exceed the initial payment and security deposit that you would need to put down if you were to decide to rent a home. Of course, having enough money to purchase the home is only half of the battle.
Before you move into your home, you will need to consider how much it will cost you every year after you take up residence. Financial experts suggest not to obtain a loan or a mortgage payment that will exceed 28 percent of your gross monthly income; additionally, your total monthly debt payments should not exceed 36 percent of your grossly month income. If you believe you will go beyond these limits, you may find yourself in financial trouble; in addition to paying the mortgage every month, you will need to also consider home maintenance. New appliances, window coverings, a new roof and carpet all cost money; nothing lasts forever.
Renting a home may be easier on your pocketbook because you can expect fixed-dollar costs for these expenditures that you simply pay with the rent. While the rent may increase slightly from year to year, depending on the landlord and location, there is also a good chance that it will remain steady. Additionally, should you encounter any maintenance issues, a landlord should be held responsible for the necessary repairs. In other words, instead of spending money on a new roof, you can spend it or invest it as you wish.
If you have calculated the math and believe you can afford to service the ongoing debt and make the initial purchase, you must also consider whether the purchase will financially benefit you as a homeowner. A place in a suburban location outside of a major city or a rent-controlled apartment in New York City may change less than a monthly mortgage payments within the city itself. Even if the cost of renting is less than buying, there are still long-term considerations to take into account.
Those who consider buying homes often cite the ability to build equity, the investment values and tax breaks as solid reasons to purchase a home instead of rent. While these arguments do hold merit, there are also drawbacks to each of them.