London Daily

Focus on the big picture.
Thursday, Jul 10, 2025

Should you rent or buy a home? Ask yourself these 3 questions

Should you rent or buy a home? Ask yourself these 3 questions

Deciding whether to rent or buy a home can have you talking yourself into financial circles.

"Take advantage of low mortgage rates and build equity!," your "buy" brain says. "Have flexibility and keep your costs of getting in and out low!," your "rent" side says.

Ultimately, the decision comes down to your financial fitness, how long you plan to live in the home and what your cash flow looks like.

While the number of home purchases reached a 14-year high in 2020, prices also went up considerably. Meanwhile, with so many people leaving major cities, landlords have been left in the lurch, and that has translated into some attractive rental deals.

Ask yourself these three questions to find out whether renting or buying makes more sense for you.

1. Are you financially fit?


The first step is to figure out if buying is even an option.

The decision between renting or buying is less about home prices or rents and more about whether you're ready to be a homeowner. What does your savings look like after a down payment is taken out? What is your credit score?

Andrew Dressel, a financial planner with Abundo Wealth in Minneapolis, likes people to have six months of expenses saved up in an emergency fund, $10,000 in cash to cover closing costs and moving expenses, and a credit score of 720 or higher.

"The emergency savings is of high importance and the 720 credit score has more wiggle room," he said.

In addition, the overall cost of owning the home, including the mortgage and utilities, taxes, maintenance of appliances and the yard and the expense of everyday wear and tear should not exceed 40% of a person's take home pay, he said.

"They need to also make sure they are not sacrificing their retirement or other goals just to own a home right now," Dressel said.

Leo Marte, a certified financial planner with Abundant Advisors in Charlotte, North Carolina, said people should also strive to be debt-free before buying a home.

"If you are not financially ready, paying rent is essentially buying patience and insurance against homeownership costs," he said.

2. How long will you live there?


If you only plan to live somewhere for two or three years, experts recommend renting. Especially now.

"If you are in a city and need to stay there, now is a great time to continue to rent and get more for your money," said Jay Abolofia, a certified financial planner with Lyon Financial. "People are able to rent in the city for dramatically less because other people have fled and landlords have had to drop their rents."

If you're feeling overwhelmed or rushed by purchasing in some hectic markets with low inventory, he said, renting is not a bad place to land, if it's only for a year or so.

He dismissed the sense of urgency many potential buyers are feeling to lock in mortgage rates at their current record lows, saying that interest rates and home prices often have an inverse relationship.

"When interest rates are lower, that puts upward pressure on housing prices," he said. "Just because interest rates are low doesn't mean it is a good time to buy and higher interest rates doesn't mean it is a bad time to buy a home."

But, Abolofia said, it is always a good time to buy if you're planning on staying there for a while.

"The longer you're going to stay, the more it makes sense to buy," he said.

Once you've determined your estimated time in this home, cross check yourself by asking if you're being too conservative about how much house you should buy, said Leonard Steinberg, an agent at Compass in New York.

"You should be conservative enough that you can sleep at night and eat," said Steinberg. "But many people are too conservative."

He said he often sees people buy homes that are too small and, after a few years, they realize the space isn't working for them.

"Now they have the costs of selling and buying again," he said, which includes closing costs, inspections, appraisals and realtor's commissions. "Moving a lot is expensive."

3. What are your monthly payments?


There is a certain amount of money you will need to buy a home, complete the transaction and maintain it, and there is no sense in rushing into homeownership before you can comfortably cover those costs.

"If you can afford the mortgage on a monthly basis, can maintain an adequate emergency reserve and are at the right point in life, go ahead and buy," said Noah Damsky, a chartered financial analyst with Marina Wealth Advisors in Los Angeles. But, he says, do the math first.

Damsky recommends that your monthly mortgage payment should not exceed 35% of your gross income. But that is the upper end. Other models are more conservative and suggest 25%, in order to keep your debt-to-income ratio lower. A middle-ground recommendation says you shouldn't put more than 28% of your monthly gross income toward your mortgage payment.

Also consider what you can afford upfront.

While traditionally buyers are encouraged to purchase a home with a 20% down payment, Damsky said, it could be advantageous to accept a larger mortgage balance with a lower down payment since mortgage rates are currently below 3%.

"I encourage clients with less than a 20% down payment to purchase a home if they can obtain mortgage insurance at less than 0.2% per year and can maintain six months of emergency reserves after the purchase," said Damsky.

And while some potential buyers may look forward to the tax benefits of homeownership -- including deducting mortgage interest, property tax payments and other expenses from their federal income tax bill -- Damsky cautions not to go overboard.

"I try to temper their expectations by explaining that the tax benefits will often be substantially offset by a roughly 1% annual maintenance cost."

And they should be warned: The out-of-pocket costs of caring for a home could be even more, said Matt Hylland, a financial planner at Arnold and Mote Wealth Management in Cedar Rapids, Iowa. He advises homebuyers to budget 2% to 3% of the home's value to cover upkeep and maintenance.

"Making sure you find a monthly payment that you can afford is important," said Hylland. "But don't forget to add to that other expenses you will face as a homeowner."

Newsletter

Related Articles

0:00
0:00
Close
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
Richard Kemp: I Felt Safer in Israel Under Attack Than in the UK
Cyclist Says Police Cited Human Rights Act for Riding No-Handed
China’s Central Bank Consults European Peers on Low-Rate Strategies
AI Raises Alarms Over Long-Term Job Security
Saudi Arabia Maintains Ties with Iran Despite Israel Conflict
Musk Battles to Protect Tesla Amid Trump Policy Threats
Air France-KLM Acquires Majority Stake in Scandinavian Airlines
UK Educators Sound Alarm on Declining Child Literacy
Shein Fined €40 Million in France Over Misleading Discounts
Brazil’s Lula Visits Kirchner During Argentina House Arrest
Trump Scores Legislative Win as House Passes Tax Reform Bill
Keir Starmer Faces Criticism After Rocky First Year in Power
DJI Launches Heavy-Duty Coaxial Quadcopter with 80 kg Lift Capacity
U.S. Senate Approves Major Legislation Dubbed the 'Big Beautiful Bill'
Largest Healthcare Fraud Takedown in U.S. History Announced by DOJ
×