This is the time to throw off all of those old misconceptions from the past and look forward to planning your future! A future goal of yours may be to finally acquire your first home, but what is the better path to take in order to stay financially secure: buying or renting?

Generally this answer can be determined by having some idea of how long you will stay in your new home. If you plan on staying in your home over a long period of time, owning may save you more in the long run. Conversely, renting will help you save much more if you only intend to live in the area for a year or two. But this isn’t a “cure-all” formula to your dilemma. Below are the main costs associated with owning and renting a home you should compare before making a financial decision.

The Costs of Owning

Buying a home is just like buying a car: you place an initial down payment on it so you can take it home, continually pay off the car via monthly payments, and then pay for the upkeep (like changing the oil, fixing a tail-light, refilling on gas, etc.). Likewise for a home, keep in mind the purchase and yearly costs, which can include:

a. The down payment
b. The closing costs of the home
c. Your monthly mortgage
d. Your property taxes
e. Utilities
f. Maintenance fees

The Costs of Renting

Renting a home can be related to just about anything you rent: like a textbook, for example. Basically you pay a monthly rate for the book until you return it to the lender, all the while making sure not to take notes in the margins or dog-ear the pages. It’s a good way to save money if you know you aren’t going to keep it forever! Now back to renting a home, make sure to keep in mind the initial and yearly costs, such as:

a. The Security Deposit
b. Broker’s Fee
c. Your Rent
d. Renter’s Insurance

Do Your Homework

What you need to take from this is that there is no ultimate right or wrong answer. Life is full of shades of gray, so there are always ways that you can improve your personal financial situation and the responsibilities that come with home-owning or renting.

Helpful Resources

1. Buy vs. Rent Calculators: There are tons of calculators all over the internet, but the most detailed and easy-to-use one can be found in the New York Times graph that adjusts to your individual input. They compare the costs of renting and owning that we have identified, as well as additional data concerning loss opportunity and selling costs.

2. Talk to a CPA or tax accountant. A CPA will help you figure out the actual money you’ll save on your deductible if you would like to buy a home. They can also offer great advisory services (like what to do if you have a bad credit score or have a high-debt ratio) that the calculator may not be able to tell you.

3. What do YOU want: This is a given, but your lifestyle will drastically affect your decision on this big financial decision. Would you like to travel? Do you have guaranteed job security? Are your goals long term? Short term?

That last task is the most important one to resolve – make sure you construct a financial plan that matches your internal goals. May your plans succeed and grow to fruition!