More millennials are moving into the real estate market. About 65 percent of people ages 25 to 34 years old surveyed by Realtor.com said they plan to buy sometime.
But buying is not always the best option. When deciding one of the biggest financial decisions of your life, keep these things in mind to see if you're better off buying or renting.
Here's where it makes sense to rent:
You have limited funds. If you don't have the money for a down payment and additional costs of owning a home, renting is the best option. Use rent-versus-buy calculators to see what you can afford.
You are uncertain about your employment. If you are unsure about your job situation or living paycheck to paycheck, focus on conserving cash for future living expenses and building up your emergency fund.
You have a short-term time horizon. If you are on a work assignment that lasts two years or less, it makes more sense to rent rather than taking on the high transaction costs of purchasing a home. Same goes if you plan to move in the next couple of years or want to start a family in a few years. On a similar note, if you are going through a significant life transition, like divorce or loss of a spouse, renting is a better idea while you get a little better footing.
But you are better off buying if:
You can cover the additional costs of owning. Make sure you can pay the down payment and closing costs before buying a home. Most banks still want a 20 percent down payment. So if you are purchasing a $250,000 home, a 20 percent down payment would be $50,000. That's in addition to a typical 5 to 6 percent in commissions plus another 1 percent in closing costs. Maintenance costs are also a big factor to budget for.
You plan to stay in the home at least five years. It's best to buy when you have the "long-term horizon. Staying in a house that you buy for less than at least five years means you are more likely to lose what you paid in transaction costs.