Renting vs. Buying a Home: Which Is Smarter?

Considerations include your age, stress level and investment outlook.

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When Laurence DeGaris moved into his first house last August, at the age of 49, the University of Indianapolis marketing professor quickly found himself missing some of the pleasures of renting.

"The best thing in my old place was Lou," DeGaris says. "Faucet leaking? Call Lou. Air-conditioning not working? Call Lou. Now that I'm a homeowner, I got no 'Lou.' You know anyone who does gutters in Indianapolis?"

Is it better to rent or buy a house? That's a question virtually all adults ask themselves at one point or another, and especially around this time of year, as some people consider their goals and plans for the year ahead. So before you answer the question, here are some other questions you should ask yourself first.

Is it important that your house is an investment? If it's very important, you might want to rethink your future living arrangements. "Americans were used to their homes being a store for wealth – something to liquidate in retirement and downsize," says Scott Shellady, a senior vice president of derivatives for Trean Group, a futures and commodities exchange in Chicago. "No longer the case. Houses can go down just as easily as they go up."

[See: A Step-by-Step Guide to Homebuying.]

He adds: "The bull run in housing we saw in the '90s and early 2000s will not happen again in our lifetime."

Shellady also cautions prospective homeowners to think about the health of the city they want to live in before taking out a mortgage. "Bankrupt municipalities can't put out fires. They can't stop thieves. They can't pick up trash and they can't maintain roads," Shellady says. "How much would your house be worth if your municipality was in that situation?"

This isn't to say your house won't be worth more someday versus when you bought it. But if you want a robust investment portfolio more than you want to buy a house, talk to a financial adviser instead of a real estate agent. Additionally, if you believe you're going to be in a house less than five years and want to sell it at a profit, most experts suggest it's safer to stick with renting.

Have you crunched all the numbers? Ron Throupe, an associate professor of real estate at the University of Denver, says the biggest mistake future homebuyers make is comparing a month's rent to a month's mortgage payment.

"Many people don't have all the numbers," he says. "There are many additional fees you need to include to make a fair comparison: the principal interest, property taxes, property insurance, homeowners association fees and maintenance."

The maintenance, in particular, can't be underestimated, he says. As DeGaris found out, if your furnace goes out or a pipe leaks, you have to fix it yourself or hire a professional. And there are other ancillary costs as well. "As a homeowner, you may find you suddenly need lawnmowers and snow shovels and new furniture," Throupe says. "It all adds up."

Can you handle the stress? "Most people weigh the financial aspects of buying versus renting, as they should, since it's the biggest financial decision most people will make. But one big factor to consider when buying a home is stress," says Tim Lucas, editor-in-chief of mymortgageinsider.com, an informational website.

Lucas says the Holmes and Rahe Stress Scale, a landmark stress study conducted in 1970, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28) and change in residence (No. 32).

"If someone has recently made other life changes such as marriage, which is No. 7, switching careers (No. 18) or having a child (No. 14), it might be wise to postpone buying a home," Lucas says. "Stress overload can lead to missed payments, which can result in destroyed credit or even losing the home. It's better to rent if your life is in flux, and then buy when your stress levels are lower."