Should you rent or buy a house?

  • How long you plan to live in the home is the first thing to consider.
  • Principal and interest are just part of the equation. Insurance and taxes add up.
  • Don't let tax credit push you into a home you can't afford after you move in.

Sometimes it's better to keep renting, even when a tax credit encourages buying a first home. Renters should consider the freedom and the money that they sacrifice when they buy.

Before buying a home, renters should ask the following questions:

  • How long do I plan to live there?
  • How important is it to be able to afford to move when I want to?
  • Which option costs less every month?
  • How much time and money do I want to spend on maintenance and repairs?

The first thing to consider -- even before you think about monthly costs of renting versus owning -- is how long you plan to live at your next address. "If it's less than four years, I would rent," says Elaine Zimmerman, a real estate investor and author who lives in Memphis, Tenn.

Zimmerman is a landlord, so it's natural that she's an advocate for renting. And she lists a couple of reasons for renting if you believe you might move within four years or so. The first reason is a rule of thumb that applies no matter what is happening with the economy: "At least with a rental, if you get an offer for a different job, you can take it," Zimmerman says.

How long should you live in a house?
  • How long should you plan to live in a house to make it worthwhile? Many people say four years. The problem with the four-year rule is that most people don't know how long they will spend in their next residence. And there's not a lot of research into the question.
  • The National Association of Realtors says, anecdotally, that the typical first home is owned for four years. The Census Bureau asks a different question: How long has the owner lived in the current home? In 2007, one-quarter of homeowners had owned their home for two years or less, and half had owned for seven years or less.

It's impossible to predict how long you'll stay in one place, but you have to come up with your best guess anyway, says Catherine Williams, vice president of financial literacy for Money Management International, a financial and debt counseling service. She suggests renting if you plan to live in the place for less than three to five years, because the benefits of brief ownership are not worth the time and money it takes to sell the house.


"Understand that it isn't going to be as easy as putting a for-sale sign in the front window and waiting for people to come by with buckets of money," Williams says. Monthly payments are still due while the house is up for sale.


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