Recently, I received this letter from a reader and I asked her permission to share it with all of you so that you could weigh in on her dilemma.
Hello Frugal Girl!!
First let me say that you have been an enormous inspiration to me in the past couple of years. I have been able to whip my financial self into much better shape, largely due to the motivation and advice I’ve gleaned from reading your blog. So for that, a huge THANK YOU!!
One thing I’ve always hoped to read about on your blog and haven’t (maybe you have at some point posted on it? Not sure) is the dilemma of real estate and home ownership. I am currently driving myself utterly CRAZY trying to decide whether or not I should become a homeowner. I am 29, single, and have a net monthly income of 2,900. Since I’m a teacher, this income is pretty fixed and will not go up very much at all, if any. I will be debt-free this February, but have little savings. I’m wrestling with whether to take on a monthly payment (mortgage, hazard insurance, and taxes rolled in) of 1,150.00. That’s about three times what I pay right now as a renter (with a roommate).
I was dying to ask: If you were in my shoes, would you do that? Or would you keep renting? I am literally driving myself insane over this.
Was purchasing a home a difficult decision for you? I know we’re in very different situations, as I don’t have any kids or a husband (someday I hope!!), but I wondered what your advice would be.
I’m so happy that my blog has helped to put you in a better financial position!
The rent vs. buy debate is a really tough one, and I’m no expert on it. However, in your current situation, I think I’d be inclined to keep renting.
Yes, when you own a home, some of your payment is going towards principal, but not very much (when we bought our townhouse, out of a $1000 payment, only about $100 went towards principal each month). So, I think you’d be in better financial shape if you kept renting and saved/invested the money you’d spend on your mortgage.
Also, I think it’s important to build up your savings before you jump into home ownership. When you own a home, a lot of unexpected expenses can pop up (you won’t have a landlord to pay for the heat pump or the roof or the pipe leak) and without a savings account, you could get into financial trouble very quickly.
Plus, in the current market situation, you’re going to need money for a down payment and for the costs associated with buying a house.
So, at least for the time being, I’d encourage to keep on renting with your roommates and to work hard at building up your savings account (my favorite savings accounts are from ING). Then in a year or two you can re-evaluate your situation and decide whether buying is right for you.
As far as my own personal story goes…Mr. FG and I rented a little one-bedroom basement apartment for the first 2.5 years of our marriage. After Joshua was born, the one-bedroom thing began to be very burdensome, so we looked into other options. Apartment rental prices weren’t a whole lot lower than a mortgage payment at that point in time, so we decided to buy. For us, it was a really good decision because we got into the housing market shortly before it exploded, and if we’d waited, we’d have had a really hard time getting into the market.
In the current housing climate, though, I wouldn’t say you should feel like you need to hurry up and buy…I’d be pretty surprised if housing prices started to climb anytime soon.
Readers, what are your thoughts about Claire’s dilemma? She’d love to have your input!
Today’s 365 post: You’ve heard of a happy camper, right?