Should you keep renting or should you buy a house? How to make this important decision

It’s an age-old question: Should I buy or rent? And while the age-old answer has been “buy, of course,” that’s not always the case for each person.

Buying gives you a chance to build equity and get a return on your investment, but the threshold to purchase your first house is high — and it continues to increase.

Plus, renting has its advantages too, like more updated units and the ability to call your landlord when something major breaks.

So again, let’s ask: Should you buy or rent your home?

No, you don’t waste money by renting instead of buying … not initially, at least.

In general, if you plan to be at your location for fewer than three to five years, renting is likely the way to go. You’ll save big money on upfront costs associated with buying — like a down payment and closing costs — that you probably wouldn’t recoup until many years later (and assuming your home appreciates in value).

You might be asked to make up to a 20% down payment, which on a $300,000 home, is $60,000. And remember that you’ll need to be able to afford those closing costs too, which run about 2 to 5% of the purchase price .

If you don’t have a large amount lying around (and can’t find it in the sofa cushions), then renting might be for you. For most rentals, all you need is a security deposit (usually equivalent to a rent payment) and the first month’s rent.

Past those initial costs, the price of unexpected repairs can be a major factor in deciding between buying and renting.

With renting, you won’t be on the hook for major home repairs. The laws vary state by state, but in general, landlords are required to keep properties habitable. For example, that means if your air-conditioner goes out in the middle of summer, your landlord should have it fixed as soon as possible. And that’s big news because an AC unit repair could cost up to $900 . If you need a new unit, that could run up to $10,000.

But what if you’re a homeowner? Not surprisingly, you’ll be responsible for paying for the expense.

While your landlord could be responsible for that broken AC unit, they’re not necessarily required to replace that ugly shag carpet installed in the 1970s.

If you’re the owner, you can do what you want with the interior to make the house a home. Replace the carpet, paint the walls, install a new lighting fixture, knock down some walls … whatever home improvement ideas you have can become a reality.

That’s not the case if you’re a renter. When you don’t own your place, you’re limited in what types of upgrades you can make.

But it’s not necessarily a bad thing. Renting can oftentimes get you into a nicer, more updated home for less money. Instead of stretching your bank account too thin buying a fixer-upper, you could rent a home that’s already been upgraded. While you might not be building equity on the home, you’ll certainly enjoy those granite countertops and the stainless steel stove.

An important advantage of home buying is building equity with every home loan payment. With renting, you make your monthly payments and move out when your lease is up. But when you buy, the property is yours. Sell it, and the earnings (minus any outstanding balance on your mortgage) are yours.

Home improvements can also be a big factor when it comes to house appreciation. Keeping your home up-to-date and adding upgrades (like an addition, a renovated bathroom, or even new appliances) — along with many other factors like population growth, high-demand neighborhoods, market conditions, and more — can drastically impact how much your house appreciates.

New to the neighborhood? Poor credit score? Unstable job? Good news: Renting gives you flexibility if you find yourself in one of life’s uncertain situations.

Let’s say you take a job in a new city you’ve never been to before. Rather than buying a house sight unseen, in a neighborhood you may or may not want to live in next year, renting can be a good way to test out your new surroundings.

Or perhaps you’re trying to pick yourself back up after some credit history troubles. You might need a co-signer or extra money upfront to rent a place, but doing so gives you an opportunity to improve your credit history. (Credit bureaus reward you for making on-time rent, utility, phone, and credit payments .)

Expert tip: The higher your credit score, the lower your interest rate on a home loan. Correcting your credit could be the difference between you paying an extra $300 monthly on a 30-year fixed home loan .

Your career can also greatly affect your choice of property. If your job requires you to move from city to city or isn’t entirely secure, a rental home could be an ideal choice should you need to relocate suddenly or sooner than expected. The last thing you want to do is buy a house and then have to move several months later because your employment situation changed.

Being a homeowner can be one of life’s most rewarding experiences. It’s also one of the biggest purchases you’re going to make in your lifetime, so knowing if you’re ready to make the leap is important.

If you want to buy a home but don’t know where to start, our Affordability Calculator can help you begin the process. Your before-tax household income, itemized monthly expenses, credit score, and property location are all vital components to understanding what you’ll be taking on. From there, the calculator will give you a housing price that comfortably fits your budget, the estimated monthly payment, projected down payment, and much more. You’ll be able to see everything from property taxes to the monthly cost of homeowner’s insurance.

For example, for someone with a household income of $100,000 and monthly expenses of $1,000 in Illinois, the Affordability Calculator says a $423,000 home could be within your budget. Your monthly payment would be about $2,250 — $1,569 towards your mortgage, $611 toward property taxes, and $71 towards homeowner’s insurance.

To avoid paying private mortgage insurance (PMI), you’ll likely need a 20% down payment. In this example, that’d be about $85,000. You could put down less, but purchasing PMI would increase your monthly payments — and likely reduce the overall price of house you could afford.

Once you have a baseline reading of the costs you can afford, go ahead and treat yourself to some house listings. You might still be months away from actually buying something, but the earlier you can decide what types of homes and features you like and dislike — and can afford — the better. Does your lifestyle (and budget) call for a Mediterranean-style home with a big backyard? Or are you trending more of the two-bed, one-bath ranch?

If you've decided home-buying is right for you, it’s likely time for a mortgage. The home loan can sound like the scariest part of the house-buying process — it can be a 30-year commitment, after all — but it isn’t as intimidating as it might initially seem.

First, you’ll want to get pre-approved for a home loan. To do this, make sure you know your credit score, debt-to-income ratio, down payment, and proof of income. (Hint: You’ll need most of this information for renting, too.)

Again, you’ll want to make sure you’re staying at a location for at least three to five years before starting the process. If you plan on moving or refinancing after that, a 5/1 adjustable-rate mortgage (ARM) could be the right move for you. You’ll pay less interest than you would with a fixed loan and your rate is locked for the first five years. After that, it will adjust every 12 months based on current market rates.

If you’re feeling a bit more locked in — you know the area, you’re ready to settle down, and you’re in this for the long haul — consider a fixed-rate mortgage. You’ll have peace of mind what you’re paying month in, month out. Ally Home offers 15-year, 20-year, and 30-year fixed-rate mortgages.

You could also consider an ARM with a longer fixed-rate term. Seven and 10 years are common.

No matter your financial situation, renting or buying is a big decision to make. Renting can be a wise route if you’re not looking to settle in for the long term and want to avoid large, upfront costs. But buying gives you the ability to build equity and the freedom to make the home improvements you want.

Are you now better prepared to answer one of life’s age-old questions: Is buying or renting the right move for you?