Renting vs. Buying

Purchasing your first home is arguably the largest single financial decision that many Canadians may ever make. Many people struggle with the decision of when to take this big plunge. So are you really ready to take this next step?

Before you weigh out the pros and cons of renting vs buying, you must first decide if you even should be considering a home purchase. There are a few questions you need to answer to assess your readiness:

Are you financially stable? You must first decide if your current financial situation is a stable one and if you can handle the additional expenses that come with home ownership. Many people look only at the mortgage payment amount and forget about property taxes, insurance, repairs, increased utility costs, etc.

Are you stable? The next question you need to ask yourself is if your job, family and overall situation is one that makes it likely that you won’t consider moving for at least 4 or 5 years. If there’s a reasonable chance that you may move to a different city in the next few years, home ownership may not be for you. Although you may convince yourself that you can always rent out your home if you move, this is not as easy as it sounds.

Is the market stable? Few can argue that the US housing market currently holds many great deals and it has not come close to recovering from the mortgage market crisis in 2008. Canada is definitely in a different situation. Some (but not all) analysts are predicting that a housing “bubble” currently exists in Canada and it could burst sometime soon. Make sure you research the market conditions and your finances allow for a correction or a rise in interest rates.

If you find yourself comfortable answering the above three questions and feel that you’re in a good position to become a home owner, you must then weigh out the pros and cons of renting vs buying. Each option has its own benefits and drawbacks and you should carefully consider them all. Purchasing a home is a business decision and you must do your best to take the emotional aspects out of the equation.

Renting allows you to operate on a very fixed budget; emergencies happen and things wear out and the landlord is responsible for these extra costs. However, as a renter, you are subject to many things that the owner can change such as rent increases, modifications and their ability to evict you if they no longer want a tenant. Home ownership puts you in complete control and you can update and renovate as you see fit. It also allows you to start building up equity in your investment and you will have something to show for all those mortgage payments down the road.

Don’t forget though that with the perks of ownership comes all of the responsibility. Rising mortgage rates, property taxes, unexpected repairs and more can quickly extend your finances far beyond what you can afford. When you’re calculating a budget to see what you can afford, make sure you allocate some extra funds each month to an “emergency fund” to plan for these unexpected events.

So which is right for you? The final decision will most likely come down to costs and what you can afford. If, when you run the numbers, you find that the price point of a home you’re looking to buy is “just doable”, I strongly suggest you step back and get some professional advice before you go any further. If you run all the numbers and feel that ownership falls well within your budget limits, then maybe it’s time to take the big plunge and start building up equity in your very own home.

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