Rent or buy? It's a big decision, particularly for young professionals as they launch their careers and begin shaping their long-term financial plan. After all, for 22 million Americans, rent takes up 30% or more of their income. Th🧜at percentage climbs well above 50% in several U.S. states, including Florida (61.7%), Nevada (57.4%), Hawaii (56.7%), Louisiana (56.2%) and California (56.1%).

Meanwhile, mortgage and homeownership costs are higher (and rising, too). According to the National Association of Home Builders, the median-priced home eats up 38% of the median family's income. And that percentage climbs depending on where you live: Honolulu, Hawaii (73🍨%), Naples-Marco Island, Florida (71%), San Diego-Chula Vista-ꦆCarlsbad, California (70%), and San Francisco-Oakland-Berkeley, California (69%).​

But which one makes more sense? Here's what young professionals should consider.

Start With Cost Considerations

Cost is an obvious factor in the rent or buy decision. However, it's important to have a well-rounded financial picture of how the two compare. "There's always a tipping point as to when the cost of purchasing will be more beneficial than renting, but there are some factors that play into what and when buyers will purchase," said New York City real estate agent Gina Ko.

Beyond a property's 澳洲幸运5官方开奖结果体彩网:purchase price, young professionals should also consider things like the 澳洲幸运5官方开奖结果体彩网:down payment, closing costs, homeowners association or co-op fees, insurance, property taxes, utilities and main♉tenance. Those costs can vary widely based on the type of property you're interested in buying.

Your choice of market also matters. In certain cities, there may be a big di✨fference between rental rates and♛ a mortgage payment. San Francisco is a prime example. The median rent price as of September 2024 was $3,395, according to Zillow. Meanwhile, Zillow reports a median home price in San Francisco of $1,260,086, which works out to a monthly payment of $5,288.84 (assuming 20% down and including taxes and insurance).

The down payment could be a deciding factor. While it's possible to get loan with as little as 3% down, Ko said that even this amount could be difficult to save for someone who's in the first years of their career.

澳洲幸运5官方开奖结果体彩网:Interest rates are also a consideration, said Wes Woodruff, partner and senior mortgage loan originator at Residential Funding Consultants in Atlanta. I⛄nterest rates affect how much you'll pay for a mortgage, but they can also trigger rental rate increases. You have no control over what a landlord will charge you, said Woodruff, and "it could be cheaper to buy today than to stay in a place with consistent rental increases."

Consider the Long Term

In addition to cost, young professionals should be thinking about where their career path may take them when contemplating the shift from renting to buying. Ko said that she often encounters younger buyers who aren't sure where they'll be career-wise in three to five years. A frequent compromise is purchasing a condo that they can rentཧ out if their job takes them in a different direction or to a different cit꧃y.

"Your career trajectory has a huge impact on your renting or buying decision," said Shane Lee, corporate communications analyst for RealtyHop, and one of the most important factors is how a career change could affect your income. "Owning a home requires a huge financial commitment, and if your income is going to fluctuate in the next three to five years, it might not be ideal for you to buy."

Woodruff said that buying can be worth it if you know you'll be staying put in your current location for at least three years. But you must look at the various what-if scenarios. That includes the possibility of being transferred, having the startup you're working for go belly up, or moving to a different company and taking a pa🥃y cut.&nbsꦓp;

Starting a family also comes into play. Lee said that buying may not be on your radar if you're single and have no immediate plans to start a family. On the other hand, owning a home can offer more security and stability if you envision a spouse and kids in the picture—or you already have a family.

When you're motivated by family considerations, renting versus buying becomes more about finding the right neighborhood that offers quality schools, a safe environment, and a reasonable commute to work. That is not to mention having the space you need. "I think it's really hard to have an apartment with kids," Woodruff said. "Having a house on your own with a backyard goes a long way to help a family grow."

Be Ready to Buy When the Time Is Right

If you plan to rent for a little longer before you buy, don't waste that time. Use it to get yourself financially prepared for homeownership.

"Your 澳洲幸运5官方开奖结果体彩网:credit score is huge," Woodruff said, and young professionals don't always understand how credit works. Credit scores aren't the only determining factor in mortgage decisions, but they're important, and a higher score could translate to a lower interest rate on a home loan. If you're just getting started with credit, Woodruff recommends opening one to two credit cards and charging only wh💦at you can afford to pay in full each month. And most importantly, make your payments on time.

Evaluate your current salary against its growth potential to determine what kind of budget you'll have to work with when you're ready to buy. If you're facing a large amount of debt, specifically 澳洲幸运5官方开奖结果体彩网:student loan debt, Lee recommends working on paying some of it off so you have more income available to pay for a homeౠ.

Finally, consider your down payment and closing costs. Saving a down payment of 20% or more allows you to avoid private mortgage insurance (PMI), although it's possible to buy a home with less money down. Closing costs can add an additional 2% to 5% to the total of how much cash you'll need to buy.

The Bottom Line

Renting and buying both have their pros and cons for young professionals. Renting allows you to avoid certain costs, such as making repairs and upgrades, property taxes and homeowner's insurance, but depending on where you live, owning a home may be the more affordable option. Weighing both sides of the equation, along with the financial considerations, can help you determine which makes more sense. Most importantly, keep your ultimate objective in perspective.

"Decide what your priorities and goals [are]," Ko said, "and work backward to make sure you can attain and reach them."