If you've saved for a down payment and don't have a lot of cash left over, you may not be able to afford improvements anytime soon. Consider whether you'll be happy living in a home as it is for several years, as new appliances, flooring and other features may strain your budget.
What extra expenses will you have?
Although the interest you'll pay on your mortgage is generally tax deductible, you'll need to be able to pay for some extra expenses if you decide to buy a home.
You'll need homeowner's insurance, which usually costs around $700 per year on a $200,000 home. You'll also need to pay private mortgage insurance (PMI) if you make a down payment of less than 20 percent on your home. This usually costs between .5 percent and 1.2 percent of the loan value. You'll also owe property taxes and need to pay for regular maintenance and repairs, as well as any larger issues that crop up, such as replacing a roof or furnace.
How long do you plan to stay in your residence?
If you're a renter, it can be a lot simpler to pick up and move for a new job or an adventure in another part of the state or country, according to Forbes. You won't have to worry about selling your current home before you can move to a new one, and the process of moving is generally much quicker and easier. This flexibility can be important to millennials, who often value experiences over possessions.
Experts usually say you need to be prepared to live in your home for at least five years. If you sell before then, your home won't have had much time to appreciate, and you aren't as likely to recoup expenses such as closing costs.
What are your priorities?
Figuring out what's most important to you can go a long way toward determining whether you should buy or rent. Homeownership is very important to some buyers, and it's often recognized as a way to build wealth over the years. Self-made millionaire David Bach told CNBC Make It that "buying a home is the escalator to wealth in America. Homeowners are worth 40 times more than renters."
Millennials, however, are sometimes skeptical about the financial advantages of homeownership since they've seen some of the results of the housing crisis, including falling values and foreclosures. And they tend to place lifestyle pleasures ahead of homeownership, with nearly half of millennials saying they'd rather spend money on traveling than on homeownership. The same is true of small luxuries such as eating out, which are more important to millennials compared to older respondents.
Is there a third option worth considering?
Renting a detached home or townhome is becoming an increasingly popular option, according to USA Today. Although it's certainly not exclusive to this age group, millennials have led the trend. This can be a good choice since you avoid making a long-term commitment and don't need to save for a down payment or pay for maintenance and other expenses associated with buying a home.
This type of rental can be a good middle ground, allowing you to have flexibility while seeing what it would be like to live in a home or townhome instead of in an apartment.