The American Bankers Association suggests that consumers ask themselves the following five questions when deciding whether to buy or rent property:
1. What will monthly costs be, and can I afford the payments? Keeping mortgage payments under 30 percent of your gross monthly income is a good rule of thumb. If you can't keep mortgage payments to less than that percentage, you may be better off renting for awhile.
2. What other debt do I have? Total rent or mortgage payments plus credit obligations should not exceed 35 to 40 percent of gross monthly income.
3. What is my credit score? Can I qualify for a good interest rate? A high credit score indicates strong creditworthiness, and that qualifies you for better interest rates on your loans—whether they are mortgage loans or credit card loans. Maxing out on your credit lines and paying bills late will lower your credit score. The impact of your credit score on an interest rate can be significant. For instance, a borrower with a score of 760 could pay three percentage points less in interest on a mortgage than someone with a score of 580. Lower interest rates also mean lower monthly payments. If your credit score is low, you may want to delay buying a home until you can improve your score.
4. How much will taxes, monthly maintenance, or other fees cost? Owning a home means you'll have to pay real estate taxes and other carrying costs like insurance and maintenance. On the other hand, owning a home brings big tax savings at the end of the year. As a renter, the owner pays those costs for you.
5. How many years will I stay here? Generally, the longer you plan to live someplace, the more sense it makes to buy. You'll build equity in your house and its value will increase over the years.
Advantages Disadvantages Buy Property builds equity Responsible for maintenance Sense of stability and security Must pay property taxes Freedom to change décor May not sell quickly Tax advantages Rent No maintenance responsibility No equity built Easier to vacate No tax benefits Can’t change décor Possible rent increases