PERSONAL FINANCE

Is now a time to buy or rent? 6 tips to help you decide. 

New York Life | March 12, 2023

Updated October 13, 2023

Young families, recent graduates, and young and established professionals are being priced out of big cities like New York, Chicago, and Los Angeles. Is a mortgage even feasible? During times of high inflation and high interest rates, is it better to rent?

Here are six tips  if you’re deciding between buying and renting:

1. Do the math

The starting point when considering whether to buy or rent is affordability. What will renting a suitable property cost in the area you are looking? How does that compare to the monthly cost of buying?

With a rental agreement, deposits are much lower and your monthly payment is agreed at the outset, so if interest rates rise there is no increase in the rent. This makes budgeting easier. However, bear in mind that landlords can increase rent when your contract is up for renewal. If you rent, you won’t need to pay for any repairs or renovations and you won’t lose money if the value of the property goes down.

With a mortgage, a sudden rise in interest rates could see your monthly payments jump immediately. However, if you can put together a down payment and can afford the monthly mortgage payments, as a homeowner you have an asset with the potential to grow in value.  

2. Make an informed decision

The average APR for the benchmark 30-year fixed-rate mortgage is 7.9% (as of October 13, 2023). To put this into context, the average 30-year fixed-rate mortgage at the end of 2021 was a mere 3.1%.

You could lock into a mortgage rate while you are house hunting if you believe rates may rise during this time. Your lender or mortgage broker can help with this.

You can make life easier for yourself by providing a larger down payment. This should lower your monthly mortgage payment as you are borrowing less. The larger deposit may also mean your mortgage provider offers you a more favorable interest rate. At a time when interest rates are high (or rising), this might be a real help.

3. Consider whether this is the right time to buy

Saving up for a mortgage deposit (i.e., 15% of the total property value) could take several years. With rents high too, it may be practical to move in with parents or friends to save quicker.  

Do you plan to be living in the same area in two years’ time? If you plan to work in different places or travel for long periods, then renting makes more sense than buying.

If now feels like the right time to buy ─ how much money will you have left after monthly mortgage payments and other bills? Will you be able to afford maintenance costs if repairs are needed? A rule of thumb is 30% of your monthly income should go toward housing.

4. Consider living outside the city

With the popularity of the hybrid working model , more people are living further away from the office. A commute of, say, 150 miles round trip once a week rather than every day makes a big difference in time commitment and travel costs.

How much are property prices 100 miles or more from the city center? Are they now in your range for a mortgage offer? Are rental costs lower too?

5. Be smart and shop around

If buying rather than renting is your preferred option, shop around. Ask for mortgage quotes from multiple lenders to ensure you get the best rates and conditions to suit your circumstances.

The most competitive mortgage products are offered to those with good credit scores. If your score is low, find ways to improve it.

If you like the idea of a fixer-upper, you could look for a property that needs some attention. It may be priced inside your range to reflect the work required.  

6. Seek expert guidance  

Many of us will rent and buy in our lifetime and not always in that order. Those who have bought property many years ago may be tempted to sell, bank a healthy profit, and then rent. Existing homeowners who bought when rates were even higher could save money by re-financing with the best current terms and rate.   

Buying a home is one of the biggest financial decisions you will make in your life. Guidance from a professional real estate adviser could provide the assurance you need to take the next step.  

This material is provided for your general information only.  

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Media contact

Kevin Maher
New York Life Insurance Company
(212) 576-7937
Kevin_B_Maher@newyorklife.com