If you’re considering buying a house vs renting, here are several important considerations based on the seven key areas of financial planning.
Even with mortgage interest rates at a higher level, buying a house can still be an opportunity. Rates may come down but home prices may not.
Is buying a house NOW better than renting?
A good place to start is to do the math, asses how the decision aligns with your financial purpose, and get a good understanding of how the decision impacts the key areas of your financial plan.
The below considerations are based on the seven key areas of planning. You may find some of these helpful when deciding if buying a house vs renting is right for your situation.
Buying a house adds to the asset column, while the mortgage adds to the liabilities column. Depending on your down payment and closing cost amounts, you will be “moving” assets from cash to property.
Buying a house may be net worth neutral initially, but becomes positive net worth growth over time. It’s also important to assess debt currently carrying vs assets. Also, how does your current debt impact your credit risk score?
Does the mortgage payments, plus expected utilities and maintenance work with your cash flow? Will you need to adjust the rhthym of when you are paid vs when you pay certain bills? Will you need to adjust autopays to “smooth” out cash flow?
Is buying a house less cash flow intensive than renting? Will you need to hire caretakers for landscaping, pool, house cleaning, etc? What will it cost to furnish the space?
What is your expected cost to insure to own vs rent? Will you need to take on a higher umbrella liability coverage? Does it save money to bundle these coverages or split between different carriers? Will you need to adjust life insurance benefits to cover additional mortgage debt?
Depending on cash flow adjustments, does the new expected expenses for mortgage, insurance, taxes, and utilities allow you to continue to invest both pre-tax and after tax?
Does the cost difference limit or improve your ability to continue saving to cash reserves, 401(k), and/or other brokerage accounts?
Most people take the standard deduction now so deductible interest may not be a consideration. However, with the TCJA set to sunset with the 2025 tax year, your tax strategy may change. At the same time, you qualify for certain state tax credits.
If you purchase items like solar panels or new energy efficient windows and doors for your home, there may be tax incentives. Talk to your CPA to learn more about tax strategies for your situation.
Depending on your life stage, buying a home could impact your retirement planning. Not just in terms of dollars and cents, but also in how you expect retirement to look. Who will handle home maintenance while you’re traveling?
Are you able to continue payments with retirement income? Will it be in your best interest to review reverse mortgage options? Do you have space for family gatherings? Or, will you need to downsize?
Does the home suit aging in place? Is the neighborhood suitable for older adults?
Who should hold title for your house? What restrictions might your lender and/or insurance company place on individual ownership vs Trust ownership?
Do you intend to own the home long-term, or is this an intermediary life stage home? Will the home stay in the family or be sold as part of your estate settlement?
As you can see, there are many, many considerations to make before buying a house. Also, there are several key professionals to have in your corner: Financial Planner, Mortgage Lender, CPA, and Estate Planning Attorney.
It’s helpful to have a good understanding of your financial situation before applying for a mortgage loan and writing a purchase agreement.
Our financial assessment will give you a read on your financial vitals.
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Author: Dale Shafer II, CFP®, APMA®, CDFA®
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