Is buying a home always better than renting a home?

It is conventional wisdom that buying a house is better than renting. There are plenty of cases where this is in fact true. But it does raise the question as to whether it is always better to buy than to rent. This is something that you really need to make sure that you find out before you run out and buy a new home.

The reason that is usually given for why buying a home is better than renting a home is that when you rent you are paying every month and at the end you don't own anything. If you buy the house all of those monthly payments will allow you to build up equity in the home. This is certainly a valid argument but there are times when it does not apply. There will be times when it is in fact better to rent than it is to buy a home.

The first situation in which it is usually a better idea to rent is if you can't actually afford to buy a house. One of the reasons that the recent mortgage crisis occurred was that people were buying houses they couldn't afford. This was mainly due to the fact that they had taken mortgages with adjustable rates when the interest rate was very low. When interest rates started to go up they couldn't afford to make the now higher monthly payments. You need to make sure that in buying a house you don't end up on a budget so tight that you can't afford an increase in your monthly payment. This is a recipe for disaster.

The other reason that it may not be a good idea to buy a home is if the gap between the cost buying and renting becomes too big. There are times especially during periods of rapidly rising real estate prices where the cost of buying a home will increase at a much faster rate than the cost of renting. In this case it is often a better financial decision to rent a home and then take the difference between what you pay for rent and what a mortgage would have cost you and invest that in the stock market. In most cases this will provide you with a better financial return than you would get from the appreciation of your house.

You may also want to think twice about buying a house if prices have been rising rapidly, especially if that has been going on for a while. The last thing that you want to do is buy at the top of the market. In this case the only thing that it likely to happen is that the value of your home will decline. Remember real estate prices can and do go down, a lot of people seem to ignore this point.