Morningstar Solutions
Morningstar Solutions
Should You Buy or Rent?
Check Your Debt

What type of debt do you have? Paying off high-interest credit-card debt offers a guaranteed return that almost certainly beats the benefits of home ownership.

However, low-interest debt, like some student loans, does not automatically mean you should not buy. Compare the interest rate on your loan to the benefits of owning a house and see if it makes more sense to invest in a home or use your savings to pay down your debt faster.

Can You Afford a Down Payment?

A traditional 20% down payment is still the safest route. Paying more up front will save you money on interest, reduce your monthly payments, and keep you afloat in case the value of your home falls. Additionally, you usually need to buy Private Mortgage Insurance (PMI) if you put less than 20% down, costing 0.5% to 1% of the value of your loan. If you have a $400,000 loan, you could owe an extra $4,000 each year.

Avoid "creative financing" and be vigilant about adjustable-rate mortgages, or ARMs, which have low "teaser" interest rates that can balloon after a few years, massively increasing payments.

Rent until you have saved enough to make a substantial down payment.

Check Your Savings

Beyond the down payment, you also need to ensure you have enough saved in an emergency fund. Putting all of your money into your home puts you at risk for not being able to cover your payments in the event of an emergency.

Click here and also watch the accompanying video below to learn more about emergency funds.

Click here to view the accompanying video.
How Long Will You Be in the Area?
Rent until you are sure you will settle somewhere for at least five years. If you think you might need to relocate for work or if you're just not sure you want to commit yourself to your current city, don't buy. You do not want to be stuck if plans change.
Could Your Living Situation Change?
Do you think you may get married or have children in the next several years? The property that meets your needs now might not be a match in a few years, so it makes sense to rent until you are more settled.
Are Your Prepared to Maintain a Home?
Basic upkeep requires significant time, effort, and expenses that your landlord would be responsible for if you rented. If you lack either the time or inclination to undertake home repairs, consider renting.
Research Your Area

Compare what you get for the same amount of money renting versus buying. It could be that it simply doesn't make sense to buy in your area even if everything is in order on your end.

Calculate the price to buy vs. rent ratio by dividing the purchase price by the annual rent you would pay to lease a comparable home. If the ratio is close to 20 or higher, be wary. For context, the national average in the 1970s, '80s, and '90s was between 10 and 14 according to the New York Times, but the ratio remains above 20 in many areas of the country after prices outpaced rents during the past decade.

Try Calculators
Several sites offer calculators that compute a response based on variables you enter. Check out the buy vs. rent calculators at BankRate and New York Times to help with your decision, but remember that these tools cannot fully capture your personal situation.
Accompanying Video
Should You Buy or Rent?
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