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Six tips to help you decide whether to rent or buy

Here are a few questions to ask yourself before you make your next move, and some smart ways to save money if you decide buying is the way to go.

A home is seen for sale in Roswell, Ga.
John Bazemore/AP/File | Caption

While buying a house is expensive, it's often the best option for a financially savvy family or individual. But before you buy, you have to do the math. Is it really going to save you more money per month than renting?

We put together a guide for anyone considering the pros and cons of renting or buying, which includes a few questions to ask yourself before you make your next move and some smart ways to save money if you decide buying is the way to go.

Ask yourself how long you plan to stay.

Moving isn’t cheap, but that’s not the only reason to ask yourself how long you plan to stay in one place. Houses are major purchases, and some properties take a while to sell. That’s not a problem for those who plan to live in one place forever, but what about the rest of us? I’ve always thought of millennials as a generation of movers.

That’s not entirely true. According to the Pew Research Center, millennials move less frequently than previous generations. Their studies found that, “One-year migration rates were much higher for older generations when they were the same age.” If you fit this profile, it might make more sense to buy a home than to rent. Those who stay in one place long enough may earn enough equity in their homes to justify a purchase.

Once you know how long you plan to live in one spot, consider this rent-vs-buy calculator at The New York Times. This tool can help you determine the true cost of your home, so you can decide whether it’s worth it to make a move.

Take a look at your local housing market.

Sites like Redfin and Zillow might give you an idea of how many homes are for sale in your area, but many people prefer to work with a professional. Realtors, mortgage firms, and other real-estate companies scour MLS Listings to find homes every day.

Once you have this info, you can apply some common sense logic. Trendy cities grow quickly, and markets can become saturated with potential renters. These types of population influxes can lead to increased rent and increased home prices.

Do you know what kind of rate can you expect?

Before you make the decision to buy, consider mortgage rates. That’s a good indicator of how much extra you’ll have to pay for borrowing the money you need to buy your home. Here’s a hint: check historical mortgage rates. These have risen since last year, but they’re still incredibly cheap in comparison to 15 or 20 years ago.

Higher mortgage rates might not seem like a big thing in the short term, but they make a huge impact on the amount you spend over the life of a 15 or 30-year loan. You can pre-qualify for a mortgage at your local bank or go to a site like Quicken Loans to chat with a mortgage banker to see how your credit score affects your rate.

Can you handle risk?

You can’t predict the future, but you can plan for it. It’s easy to estimate the price of your home, the amount you plan to borrow for it, and the rate you’ll have to pay when you do. It’s a little harder to know how much the house will increase in value over the time of your mortgage, or whether it will face a decline in an unpredictable market.

Your home’s value could grow, stay the same, or depreciate. Your level of comfort with those last two situations should provide another clue about whether you should buy or rent. Like any investment, a home isn’t a promise of future growth. That’s not to say buying a home is anything like buying a car. Many homes do increase in value over time, while most cars depreciate the moment their tires hit the road. Consider your own risk tolerance when you make your decision.

If you decide to buy, your down payment could be smaller than you think.

Many home buyers choose to put down at least 20 percent of a home's purchase price in order to avoid Private Mortgage Insurance (PMI) on their monthly mortgage statement. That's not a bad idea, but it can be a major deterrent to some potential home buyers. After all, if you're buying a $150,000 home, that means paying $30,000 upfront, which can be tough if you don't have that kind of money sitting around in a savings account. But there's a way to avoid spending so much money from the get-go. Qualified buyers can apply for an FHA loan with as little as 3.5 percent down. On a $150,000 home, that means you can get by with a $5,250 down payment.

FHA loans have other benefits as well. You can sometimes qualify for an FHA loan with a lower credit score than you might need for a conventional mortgage. These loans can also help borrowers cover repairs and closing costs. These extras increase the size of the loan, and they may come at a higher rate, but they can certainly lower the amount you need to have at closing.

Remember: home negotiations don't stop at the purchase price.

Buying a home is a complex task, and there's more to consider than just the price. Don't forget that you're negotiating a contract. You can stipulate special terms to ensure you're getting the best deal. Normally, the buyer pays closing costs, including the home's appraisal and title fees, but you might be able to negotiate a better deal.

Specifically, it pays to choose your own title company. The seller's attorney often makes this choice by default, but that doesn't have to be the case. Companies like Entitle Direct can help you save thousands of dollars in closing costs. Just remember to look into this ahead of time. It can take up to three weeks for the title company to get everything they need for closing.

Does it make sense to buy a new home instead of renting for another year? The answer depends on your situation. Consider how long you plan to live in one place, the status of your local housing market, mortgage rates, and possible growth (or lack of growth). If you’re comfortable with these factors, it might be time to take the leap.

This story originally appeared on Brad's Deals.

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