Rent or Buy: Factors in the ‘Big Decision’
(Editor's Note: this article first appeared on The Home Story, a newly launched Fannie Mae website. Please visit The Home Story to read this article in its entirety.)
Jeff Daddio thinks buying a home was one of the best financial decisions he ever made.
"The number one reason I bought is I couldn't take the idea of paying rent and not having money working for me in some way," says the 27-year-old, who purchased a home with his wife in South Boston, MA, last year. The couple is paying less each month for their mortgage than they would be for rent, while building equity.
While Daddio calculated that ownership represented a good investment in his family's future, it wasn't a decision he took lightly.
Others who have done a similar analysis based on their own circumstances have come to the opposite conclusion — deciding that renting makes more financial sense than buying. And sometimes, factors like the flexibility and convenience of renting can be more important than dollars and cents.
Off the Fence
Personal and financial factors can influence your decision to buy or rent. "Choosing whether to buy or rent is a decision that requires balancing both lifestyle and financial considerations," says Sarah Shahdad, a strategic planning analyst in Fannie Mae's Economic and Strategic Research Group.
"The vast majority of people tell us that they think owning makes more sense, particularly when it comes to having control over their living space, among other benefits," she says. "Usually, that control is accompanied by additional — and sometimes unexpected — effort and expense, so households ultimately need to decide what works best for them."
Eight in 10 people viewed buying a home as a good financial decision in a survey released last year by the National Association of Realtors®, (NAR). That's up from around seven in 10 in NAR's survey from two years earlier.
Slightly more than half of renters who took part in the survey said they eventually want to buy a home, which was also up nearly 10 percentage points. In addition to being able to build equity, respondents said the main benefits of buying a home are a safe and stable environment for their family and the freedom to live where they want.
The vast majority of people who do end up buying a home are satisfied with their decision, with 71 percent of homeowners surveyed by Fannie Mae last year describing owning a property as a "very positive experience."
About a third of renters who took part in Fannie Mae's survey described their renting experience as "very positive," as well, citing budget, stress and the state of the economy as factors. But a majority of renters said that owning ultimately makes more sense from an economic perspective, not to mention privacy and security considerations.
Consider Your Future
There's no clear-cut formula in deciding whether to buy or rent. The trick is to understand the pluses and minuses, both from a financial and a lifestyle perspective, and then make the right decision for you.