Updated: April 7, 2016
The "rent or buy" decision is not always a no-brainer. During super-hot markets, when real estate prices can sometimes go up by thousands of dollars a week, the prevailing advice is, "Buy as soon as you possibly can!" But we've also seen where that advice has gotten people; namely into financial trouble (if not foreclosure) when the hot market turns out to have been a bubble. They bought houses they couldn't really afford, with mortgages that ultimately dwarfed what they could have been paying in rent for a similar home.
So, carefully consider your homebuying strategy. If you're currently a renter, but thinking about buying, consider both:
Let's clear up a common myth. You don't have to buy a house; not now or ever. It's not a necessary part of being a grownup. Plenty of people rent for their entire lives, some of them bemused by the money and effort the rest of us put into buying, maintaining, remodeling, and otherwise fussing over our homes.
The renters of the world, when faced with a leaky roof or a crack in the linoleum, can simply call the landlord and go enjoy their weekend (assuming, of course, that they have cooperative, responsible landlords). Maybe they don't gain financially when property values rise, but neither do they lose during a downturn. And, in the end, isn't buying a home about where and how you want to live, not about speculating on an investment?
Of course, there are some distinct advantages to homeownership, as well. Possibly for the first time, you'll get to enjoy the security of knowing that the landlord can't kick you out after his or her daughter graduates from college. You can stay put for as long as you can pay the mortgage. And there's the fun of choosing your own paint and tile colors, the right to get a cat or dog, and more.
So, put the thoughts of investment out of your head for a moment, and simply consider whether you'd like to be a homeowner. Here are some resources to help you do that:
Whether you want to buy a house is one thing, and whether it's a smart move money-wise is another. So you need to look at the actual numbers. But it's not as simple as merely saying, "My monthly rent check is x, and my monthly mortgage payment would be, so I should [either rent or buy]!"
The main issue is that buying has both hidden costs and benefits. As a homeowner, you'll have to deal with new costs: like homeowners' insurance, property taxes, and regular maintenance. But you'll also get to enjoy new savings, like major tax deductions for the interest you'll pay on your mortgage. How might it all balance out? To run some actual figures, based on your current rental situation and the type of home you'd like to buy, see Nolo's Should I Rent or Buy? Calculator.
If you've decided to take the plunge and buy a home, don't miss Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart (Nolo).