When to Buy and When to Rent?

Owning a home is still part of the American Dream. At First Citizens, we recognize the importance of homeownership and make it a priority to help families find a way to make that dream a reality. Though home buying can seem a bit overwhelming, it doesn't need to be.

Homeownership is an attainable goal. But before jumping into the process, take time to seriously weigh whether buying a home makes better financial sense for you than renting.

Should I Rent or Buy?

Some things to consider:

  • Location: The Golden Rule of real estate is especially relevant to this decision – location, location, location. In certain areas of the country, it may make more sense to rent than to buy. This is especially true in urban areas where real estate is extremely expensive. If you can't afford where you want to live, it may be best to continue renting until you can.
  • Timing: If there's a chance that you will experience a significant life change in the not-so-distant future, such as being relocated or going back to school, renting may make more sense. It's an ideal option for families that are planning to live in an area for less than three to five years, as there are transactional costs (commissions, closing, moving) to purchasing a home.
  • Household Growth: If your family is in expansion mode, it may be best to wait until you stop growing to buy a home. This allows you to save in the short term and make a more accurate assessment of family living space needs during the home-buying process.

Manage Budgets: Manage My Money's interactive Bubble Budgets can help account for the short and long-term costs of buying a home.

Beyond these, there are other factors that may affect your decision to buy or rent.

  • Upkeep Costs: Don't underestimate the cost of maintaining a home. Routine maintenance won't be covered by a rental management company or landlord. Be sure to figure in the long-term maintenance costs (relative to age and condition of the home) and any desired renovation costs into the home purchase price.
  • Taxes and Insurance: Depending on where you live in the country, real estate taxes and homeowners insurance can exceed monthly mortgage payment amounts. To better understand property taxes in your state, consider meeting with a local mortgage agent.
  • Large Initial Investment: When buying a home you should have at least 20 percent of the sale price for a down payment. Although some lenders may allow buyers to purchase with less than 20 percent down, it often results in higher interest rates and private mortgage insurance.
  • Long-Term Return: Real estate can be a smart investment, but make sure you do your research to fully understand the potential for building wealth and equity through the purchase of a home.
  • Tax Benefits: Interest paid on mortgage loans may be deductible on your Federal Income Tax (per IRS code) and can substantially offset tax liability. This is how owning a home can actually work for you! Consult your tax advisor to understand how this purchase affects you.
  • Stable Payments: Inflation leads to higher rental costs, but most mortgage payments are fixed for the life of the loan. (Your payment can go up slightly if property taxes and insurance rates go up or if you have a variable rate mortgage.)

Homeownership has no hard and fast rules. First Citizens Bank can help you navigate all of the options and provide sound advice and expertise throughout the process.

Start the mortgage application process or learn more about mortgage options.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank [or its affiliates] neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your situation.

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