Should you buy or rent your next house? For many decades, it seemed to be a no-brainer: if you were able to buy a house, you did it! But now, with more mobile lifestyles, changing housing markets, and the high quality of available rentals, it can be a tougher decision.
So how do you decide if you should rent or buy your next house in Grand Rapids? In the end, it is a very personal decision. However, here are a few key things to think about as you consider your options.
1. Length of Stay
First, how long do you plan to live in your new house? Are you confident that you like the neighborhood, the school districts, and the commute to work? Think long term.
If you don’t think you’ll continue to enjoy the location in a couple of years, choose to rent. If you’re not ready to settle down, buying doesn’t make much financial sense.
The first few years of your mortgage will earn you very little equity in your home. Most of your payment will go towards interest on your loan, so you won’t make much of a dent in your debt if you only live there for a year or two.
However, if you can see yourself enjoying the house 5 years from now, buying may be in your best interest. So think to the future, and crunch some mortgage numbers.
2. Comparable Rentals
It is crucial to know your options. In some areas around Grand Rapids (and throughout Michigan), buying a house can actually be cheaper than renting a comparable one. However, this depends greatly on the city and neighborhood you’re looking in.
So, take a close look at your rental options. Find a few places that would meet your needs, and determine what you’re likely to pay in rent. Compare this number to your potential mortgage amount. Don’t forget to add your taxes and insurance to your mortgage!
Depending on your location, the rent numbers may be much higher or lower than your cost of ownership. Determine if one option will save you a considerable amount of money each month.
3. Emergency / Repair Funds
As a homeowner, you are responsible for everything. If the water heater dies, you pay to get a new one (or use cold water). If the roof starts leaking, and it’s not covered by insurance, you are on the hook for the payment. There is no landlord to call, because you ARE the landlord!
If you are considering buying a home, make sure you have some financial reserves for repairs and emergencies. We have worked with many houses in Grand Rapids, and can tell you that SOMETHING will break within a few weeks of owning the home. Pipes leak. Carpets get ruined. Refrigerators fail.
If you don’t have enough savings to cover repair costs, rent for a while longer and save up for a rainy day.
4. Resale Value / Interest Rates
As of this writing, interest rates are low (historically). They may not be quite as low as they were a few years ago, but they are still competitive. If you plan to get a mortgage in the next few years, consider the interest rate you’re likely to pay.
In addition, certain parts of West Michigan are appreciating, some are depreciating, and others are relatively stable. Look at the property values around where you would like to live, and see if you can find a trend. If the area is depreciating in value pretty quickly, it may be your advantage to wait on your purchase.
However, I wouldn’t use these as a primary drivers for your decision. Markets change, and today’s hot area might be tomorrow’s down-trending neighborhood. Find a place where you want to live, and go from there.
5. Customizing
When you own a home, you can customize it. From choosing paint colors to re-doing the kitchen, you have a lot more control over your living space. You can also force some appreciation by making the home nicer over time. While you will not always earn back all of the money you spent on the renovations, you get to enjoy it for as long as you live there.
This is a nice feature. Sometimes, a house you own just feels more like home. If your numbers look comparable, think about how important this is for you. Do you have the soul of an interior designer? Will you feel stifled by a rental house’s painting rules? Buying will likely give you more options.
We highly recommend you check your numbers before buying a home. However, if everything looks solid, you can have a lot of fun making a home more personal.
So carefully consider your personal finances, your other options, and your long term outlook, and you will make a great choice. Good luck!