You probably won’t be surprised to hear that the American housing market is very competitive. But many newcomers are trying to navigate the age-old debate of renting vs. buying a home.

According to a Harvard study, the average new home was on the market for three months or less. The number of homes available for sale in 2016 was the lowest in 16 years.

The rental market is no better. The rental vacancy rate fell to less than 7%, its lowest level in three decades. That means that 93% of all the possible rental units in the country are occupied.

Because of this limited demand, rents have gone up significantly. The Consumer Price Index for rent on primary residences increased 3.8% in 2016. Most new rentals are on the higher end of the market.

Between 2005 and 2015, the country added 1.5 million units renting for $2,000 or more per month. The number renting for under $800 fell by 261,000 units.

The Upsides of Renting vs. Buying

Home ownership is not for everyone. If you lack steady income or have poor credit, it can be difficult to make the leap to owning. Some advantages of renting include:

Not Responsible for Repairs

As a renter, you shouldn’t have to pay for major issues. This includes replacing or fixing major appliances, leaks, cracks, and large maintenance issues.

However, this can be a burden if your landlord is slow to fix things. If you get into a dispute with your landlord, you may want to research tenant rights in your state.

More Flexibility

Renting requires less work and less commitment.

The average American will move more than 11 times in their lifetime, according to the U.S. Census.

If you want to be able to pick up and relocate for a new opportunity, it’s much easier to leave a rental than a mortgage.

Just make sure you understand the terms of your lease. You may be on the hook for the remaining months’ worth of rent. Or you might lose your security deposit if you move out early.

Try Things Out

Renting can also be a lot cheaper. This is in contrast to the studies that show renters are more cost burdened by housing costs.

If you’re able to live with roommates, renting can be cheaper. It can also be an opportunity to live in a better neighborhood than renting alone.

Understand Your Rental Lease

A rental lease is a binding legal contract between you and the owner.

Once you sign, you are bound to the terms of the contract.

That’s why it is crucial to make sure you read and understand the lease before you commit.

You have the right to request changes on the lease. Although, this doesn’t mean your landlord has to accept your suggestions.

If you do negotiate a change to the rental contract, make sure you get it in writing. Get it initialed by someone with authority to make decisions.

Ask about:

  • Security deposit and move-in costs: What is the total amount due at move in? How much is refundable when you move out?
  • Length and terms of the lease: When is your lease up and what will happen then? Will the landlord give you the option to renew? Does the rent increase after the first year? Does the lease ever transition to month to month?
  • Move-out expectations: How much notice do you have to give when you are ready to move out? What does the landlord expect you to do before moving out? For example, do you have to get the carpet professionally cleaned?
  • Completing a walkthrough and move-in checklist: If possible, walk through the unit with the landlord or property manager. Take time-stamped pictures and notes of existing damages. If you document the condition, the landlord is less likely to reduce or hold the security deposit.
  • Guest, subletting, and pet policies: It’s best to clarify the landlord’s rules at the beginning. Would they allow you to change roommates or sublet your room for a period of time? Are there any rules for how long guests can stay? Are you allowed to have pets? If so, is there a pet deposit?
  • Maintenance expectations: Just because you don’t have to cover major repairs doesn’t mean that you don’t have any responsibilities as a renter. Are you expected to shovel walks in the winter or rake leaves in the fall? Do you have trash or recycling bins to take out and return?
  • Alterations and improvements: Will they allow you to paint walls or plant a garden? If so, what are their expectations when you move out?

As with any contract, you should do your due diligence. Research the landlord or property management company before you move in.

Look for complaints and reviews online. Have someone you trust look at the lease before you sign it. Don’t be shy about asking questions!

Who Can Afford to Buy?

Only 45% of renters in metro areas can afford the payments on a median-priced home in their market. But it really depends on where you live.

It is much less likely for renters in popular areas like the Pacific Coast, Florida, and the Northeast to be able to afford a home. That’s compared to renters in the Midwest and rural South.

Renters are more likely than homeowners to be “cost burdened.” This means that they are spending more than 30% of their income on rent.

The U.S. Department of Housing and Urban Development (HUD) defines being “severely cost burdened” as paying 50% or more of one’s income on housing. In 2015, more than 11 million renters were severely cost burdened. This is a 3.7% increase from the year 2001.

Barriers to Buying a Home

You might think homeowners would be timid after the housing bubble collapse of 2008.

More than 3 million households received a foreclosure notice in 2008. 861,664 families lost their homes that year alone, an 81% increase over the year before.

But that was then. Today’s home buying market is once again booming. If you’re considering taking the leap, here are some potential barriers to consider:

Down Payment

Like a car loan, the more you put down at the beginning, the lower your payments.

You will need between 3-20% of the total sale price for a down payment on a typical 30-year mortgage. This obviously depends on your loan type.

If you qualify for a Federal Housing Administration, you only have to put down 3.5% of the home price for a down payment.

There are also conforming loans. They meet strict requirements set by Fannie Mae and Freddie Mac. In these cases, your down payment can be less than 20%. They’re usually between 5 and 10%.

In order to be a conforming loan, your home’s sale price must be less than $453,100 in 2018.

This amount increases in high-cost markets such as Washington, D.C. . Here, you can get a conforming loan for up to $679,650.

To qualify for a non-conforming loan, you need to have very good credit and put down 20% or more of the home price.

Do an internet search for to play around with scenarios.

For example, the down payment on a $250,000 house could range from:

3.5% = $8,750 5% = $12,500 20% = $50,000

Coming up with this large of a down payment is a major barrier to many first-time homebuyers.

If you are lucky, you might have family members to help you. Other options include using a windfall, such as an inheritance.

If you’ve built up savings in a 401(k) or life insurance policy, you might be able to take a loan from yourself.

And, of course, there is always the good old-fashioned method of making a budget and saving the money!

Knowing What You can Afford

One of the major contributors to the housing bubble burst of 2008 was that too many people took on more house than they could afford.

Even though homeownership can help build wealth, not every mortgage is a good investment. Even if you qualify for a loan for $500,000, that doesn’t mean you should take it. Before taking on a mortgage, ask yourself:

  • Is this more house than I need? Consider both mortgage payments and the ongoing cost of utilities. Will you be paying to heat, cool, clean, and maintain a lot of unused space?
  • Can I afford this loan on my income Now and in the future? We’ve all heard the horror stories of people who took out “no money down” and adjustable rate mortgages before the housing market crash. The problem with taking out a loan that is cheaper in the beginning and more expensive later is that you have no way of knowing what your future circumstances will be. If you can’t afford the highest level of payments on your current salary, it’s likely not a good idea to risk it.

Not Knowing the Costs of Home Ownership

The price of a home is only the beginning. You also must consider closing costs, insurance, homeowner’s association fees, taxes, and payments to realtors, home inspectors, and various other services during the home buying transition.

Then there are the ongoing costs to maintain a home, including:

  • The roof and foundation
  • The yard, trees, and gutters
  • Heating and cooling systems
  • Plumbing and electrical systems
  • Major appliances
  • Interior and exterior painting and cleaning

That being said, there are major advantages to maintaining your own home.

Any improvements you make contribute to the overall value of your investment. When it comes down to it, your home is only worth as much as someone else would pay for it.

And, on the more fun side, owning means you can do (almost) whatever you want. Paint the walls, design your ideal garden, renovate and decorate to your liking.

Always check regulations with any homeowner’s associations. Find out if you need permits before starting any major renovations.