Download the Schwab app from iTunes®Get the AppClose

  • Find a branch
To expand the menu panel use the down arrow key. Use Tab to navigate through submenu items.

Homeownership: 4 Things to Know About Renting vs. Buying

Homeownership: 4 Things to Know About Renting vs. Buying

If you’ve been avoiding the real estate market, you’re not alone. Discouraged by the 2006–2012 housing market decline and subsequent tighter lending standards, many people have postponed buying their first home, or have sold their house and are now renting.

However, average U.S. home prices are up roughly 40% from their March 2012 low,¹ raising these questions: Is it time to stop renting and buy? Or I’m buying at the top of the market? Here are some points to consider:

  • Don’t buy a home primarily as an investment. Even if you live in an area where prices typically have appreciated, you can’t be sure that will continue. If financial return is the primary consideration, other types of investments, such as stocks or bonds, might be better for you. Owning a home is as much a personal investment as a financial one. Before you commit, assess your job stability and desire to stay in a particular location. As a rule of thumb, unless you plan to own a property for at least five years, buying may not work in your favor from a financial perspective.
  • Carefully weigh your options. Whether it’s better to rent or buy depends on a lot of different factors—rent and home price appreciation rates where you live, how long you plan to stay in your new home, and your tax bracket, among others.
  • Choose a house that fits your budget. If it will be a stretch from day one to make monthly mortgage payments—and don’t forget property taxes, insurance, maintenance, and repairs—home ownership could become a real headache in the event of a job loss or financial setback. Look for a house that fits comfortably within your budget, or consider renting in your desired neighborhood instead.
  • Plan to put down at least 20%. If you’re saving to buy a house, you should aim to save at least 20% of the purchase price. If your down payment is less than 20%, your lender will probably require you to carry private mortgage insurance (PMI). That means you’ll pay monthly PMI premiums in addition to your mortgage payments until your loan-to-value ratio reaches 80%. In general, the higher your down payment, the easier it will be to qualify for a mortgage loan and negotiate the lowest rate.

Source: the S&P/Case-Shiller 20-City Home Price Composite Index, change from 3/2012–11/2016. Data as of 2/8/2017.

What you can do next

  • Saving for multiple goals, like retirement and college can be challenging.
  • Learn more about creating a customized plan and investment portfolio with Schwab Intelligent AdvisoryTM to work toward a better future for your family.
  • Create your plan now. Call 888-279-2756.
Ex-Spouse Social Security Benefits: What's the Best Strategy?
The Fed has China in a Tough Spot

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Diversification and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events can be created that may affect your tax liability.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

Schwab Intelligent Advisory™ is made available through Charles Schwab & Co., Inc. (“Schwab”), a dually registered investment adviser and broker-dealer. Portfolio management services for Schwab Intelligent Portfolios™ are provided by Charles Schwab Investment Advisory, Inc. ("CSIA"), a registered investment adviser. Please refer to the disclosure brochures for details about Schwab Intelligent Advisory. Free credit balances are swept into deposit accounts at Charles Schwab Bank (“Schwab Bank”). Brokerage products and accounts are offered by Schwab, Member SIPC. Deposit and lending products are offered by Schwab Bank, Member FDIC and an Equal Housing Lender. Schwab, CSIA, and Schwab Bank are affiliates and are subsidiaries of The Charles Schwab Corporation.

Please read the Schwab Intelligent Advisory disclosure brochures for important information.

(0317-W7A9)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.