Ask The Readers | Rent or Own?
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.
-Claire
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!
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Today's 365 post: You've heard of a happy camper, right?
Your suggestion about savings is really key. I can't count the amount of times that we've just gotten a comfortable cushion in the bank and the house decides it needs something; furnace, roof, fridge...these aren't items you can do without.
I think you should wait, also. I feel you should at least have the 20% down payment and extra money for those unexpected expenses.
You can start by saving the entire amount of the expected monthly mortgage price each month plus extra housing expenses. (of course, subtract out your current rent) This will help you see if you can afford it and also help you save more for the down payment.
I was thinking this would be a much tougher call. This is an easy one, rent.
Something not even pointed out is the cost of selling real estate. I don't think most first time homebuyers understand just how expensive it is to sell a house. By the time you pay realtor fees as a seller and closing costs, not to mention cover any repairs on the house that weren't there when you purchased or your inspector missed but the new buyer's didn't, on top of declining real estate values... buying is a commitment.
I agree with Krisen & say rent but sock the difference between rent & a mortgage payment into a savings/investment account. One thing about buying a house is you are then tied to it. What if you meet the fella you have been looking for & he is headed off the make his fortune in a different place? I do love my little house but sometimes I think about the opportunities we have passed up because of it.
Fantastic suggestion -- emergency funds/savings are key here. Houses suck up available funds! Another suggestion is to try living off the $1,150 as though you had bought and see how works out -- will you have enough leftover for other expenses?
I so feel your eagerness -- do keep thinking and planning for this! But you do have flexibility and manageable income right now. Best of luck to you!
If she put the difference between her rent payment and the cost of the house into savings account for two years, she'd have an awesome down payment. She would also be able to see if she could maintain that level of commitment. That's what I would suggest.
I agree Jo's County Junction. Great Idea, great way to see if you could swing the payments and also a great way to build up a down payment.
If we didn't have one child and another one on the way, I would still be a renter. We love having the space of a house, but the maintenance and repair costs can add up pretty fast! When you rent, all you have to do is call the landlord or property manager to get something fixed and there's usually no charge. Even if you can afford the mortgage and utilities every month, it doesn't sound like there's a lot of wiggle room in your budget for unplanned expenses associated with a house. I would definitely keep renting and save up for a nice down payment.
I agree that she should stick with renting for now. Build up two savings accounts - one with money for a down payment and one for a "rainy day". Part of the reason so many mortgages get foreclosed is that people rush into home ownership without an adequate down payment. Think of it this way, the higher your down payment, the less you have to borrow - meaning lower monthly payments and/or a shorter time period until the loan is paid off. This also amounts to fewer dollars spent overall on interest. Just because someone will give you a mortgage with no or just a small down payment doesn't mean you can afford one or that it's the best decision for you.
I agree with Linda - save the amount you would be spending on a mortgage payment. Not only will this boost your savings, it will help you see if you can afford that kind of monthly payment.
If you're tired of the roommate thing and really just want to be on your own, consider a first step of renting a smaller one-bedroom place. The rent could be more than you're paying now, but that might be worth it to you for your privacy at this time in your life (and still be cheaper than buying!).
My husband and I are also renting right now and though we desperately want a home of our own, we have set a savings goal and won't take the plunge until we reach it.
Good luck!
I have nothing to add as all the advice given is spot on! Keep renting, save as much as you can for a huge down payment, and when the time comes to go house hinting remember bigger is NOT always better. 🙂
Some positives about renting:
- I can afford a much nicer plan renting than I could buying (downtown Chicago!)
- I can move at the end of my lease if I want
- I don't feel like I *have* to keep my job to pay the mortgage (mental stress thing - I really like my job, though!)
- I have a nice chunk of money in savings
- I call the landlord when the AC breaks. I pay nothing.
- The transaction costs of switching rentals (moving, lease overlaps, a few meals eating out) are far, far less than those of switching owned properties (closing costs, real estate agent, I don't even know what else, plus those switching rental costs)
- I'm still a grownup. I pay my bills on time, I have a job, I have a husband and a cat. Do I really need a house?
You're doing so well right now. Good luck with whatever choice you make! (Although yes, I too agree with Kristen. She's so smart.)
I agree with the others...pay yourself like you were a bill.
I too agree that renting is better. Save up your deposits and at least 6-9 months emergency fund . There are a lot of expenses associated with owning a house.
There are calculators online you can put your info in and it shows you how many years it takes in order for home ownership to be more economical than renting. If your living expenses will go up 3 times I think it's safe to say you should not buy. If you were to budget the mortgage amount and just stash the 2/3 in saving you will have a healthy down payment in no time. In this market I would be extra conservative before buying. If you were to get let go from your job at least you have the freedom to move.
My 25 year old single daughter purchased a townhouse 6 months ago. It made sense for her as rent would've been more expensive, she uses a wheelchair for distance and couldn't rent some place with lots of stairs and her townhouse was a foreclosure so she got it for about $30,000 under what the other houses in the area are worth. Even if she sold it today, she'd come out ahead. You have to determine how long you plan on living in the area, what your lifestyle is, etc.
I agree with the rest of the folks here - rent! Owning can be great, but only when you've got the down payment and rainy day funds *well* established ahead of time. Plus, as Molly pointed out, there are a lot of things you get with renting that you generally don't get when you own - flexibility in the amount of space you have (do you want to buy a small 'starter home', then expand if you plan on having children? Or get a place that's larger than you need for the first few years?), greater choice in location, etc.
There are also some great 'rent vs own' calculators out there - they look @ the amount you'd save if you rent and put $X in a savings account, vs if you spent $rent +X on mortgage-related costs. When the whole world (outside of this blog post) seems to be saying Buy Now!, it can be a nice way to check the actual #s involved.
Claire,
Renting or buying is a very tough decision as it's probably the most significant financial decision you'll ever make. There are a ton of advantages to renting:
1. the freedom of not being responsible for the repairs
2. being able to move if you don't like your neighbors or neighborhood
3. being able to make major life changes (such as moving to a different state) without the concern of selling a house
However, there are a few big advantages to owning which is the freedom to do as you choose to make your house a home and be in control of your living situation.
In the past three years, my family and I rented two townhomes. In both situations, our landlord decided to move back into her house and we got kicked out. Also in both situations, the property management companies were not quick to repair major problems in the house. For example, I didn't have a working stove for over a month in one house.
Since the housing market had crashed in our area, we decided to buy again. This was advantageous for a few reasons:
1. We wouldn't be kicked out again.
2. We wouldn't have the expenses of moving again.
3. We would be able to control our living situation.
4. We could buy into the market at deflated prices.
5. We could take advantage at super-low interest rates which drastically impacted our monthly payment.
With all that being said, I'm a huge believer in the importance of a 20% down payment so if all of those advantages are something you want to achieve, then save for the down payment. Also, depending on where you live, there might be help for the down payment and/or price of the house since you're a teacher. One county in our area decreases the prices of houses for teachers which lowers the down payment.
Also, have you assessed what your monthly payment would be if you continued to have renters? Some houses are ideal for renting and you could cover up to half of you monthly payment from your renter.
Sorry for the long response.....my family was just in this very hard decision making place and I wanted to share my thoughts on it!
Since we are just in the home buying process I can actually give some advice to Claire. I would definately make sure you have at least 3-6 month in an emergency fund plus I would make sure that you are 100% debt free You will need at least 3% down plus escrow prepayments for taxes and insurance for 3-6 month plus you may at least pay some of the closing cost which are usually 3-4% of the home price. Also while you are still renting Claire why don't you take the difference between your current rent payment and what your mortgage etc would be and save that faithfully every month to see what trippling your payment feels like in the long run. You want your home to be a blessing not a curse:-)
I agree with your advice. I'm 28 and my husband and I have been wondering about renting or buying, especially because we keep hearing about how it's a "buyer's market." We've done some house-hunting but without finding an awesome house in awesome condition at an awesome price (not likely in any kind of market!), we're sticking with renting for many of the reasons that you've stated. I think when we have to upgrade to a 2-bedroom or more (once we have kids), the leap to buying a house will make a lot more sense because larger apartments can get expensive fast. But for now, we're socking away the extra cash in savings to beef up a someday-down payment.
I agree with pretty much everyone here; keep renting. Usually I would say buy, because renting can be, in my opinion, a waste of money. However, with your current low savings and how much the mortgage payment would increase compared to what you're spending right now, I think to continue to rent is the best deal for you.
Some people say you should definitely have 20% to put down, but I don't necessarily think that's true. We put 4% down and still got a really great interest rate (as an aside, we got a really good loan because we were "lower income" which we aren't really, but we were under their cap so that might be an option for you in the future).
When we decided to buy...6 months into our marriage (never thought that would happen!) our rent had increased to $1,600 (rounded) and we decided that was close enough to a mortgage payment that we wanted to look at buying. Our mortgage payment currently is just under $2,000 (that's with only 4% down, too) so that's only an increase of $400 from what we were paying. Since your increase would be 3x the amount you're paying now, that really makes me think you want to wait.
One more reason I suggest waiting is that I'd highly recommend getting a house vs. a townhouse or condo. Houses have a much higher resale value, and you're more inclined to stay in a house longer. We looked at condos and settled on a house and I am so happy we did.
Rent. For the love of everything, rent.
Mind you, it really all depends on where you live, as well. I'm in CT, a state with one of the highest costs of living in the country. Friends of ours live in Iowa and paid next to nothing for their house.
I moved from Canada to be with my husband in CT. My husband and I made the stupid mistake of buying, instead of renting - at the very strong insistance of my father in law. We barely had enough for a down payment ... we ended up buying a 1k square foot house with 2 small bedrooms and a little yard. We're paying $1700 a month for just the mortgage. That's not counting any utilities. We could have rented half a house, with everything included for $1k a month. We could have had a crazy awesome savings account, traveled, done all kinds of things but we're now living paycheck to paycheck because we decided to buy instead.
Don't get me wrong - I love my house but every single day, I regret that we bought, instead of rented.
I would take some time and look into buying. In many areas there are benefits offered tofirst time buyers, teachers, police and fireman in the way of special financing, closing help and tax incentives. Check with your teachers association and a trusted Realtor for availability. Although your "gross" expenses would increase, you could offset this cost with room mates/home sharing just as you do now. The only difference being you would get the benefit of collecting rent and tax benefits. But there will be added responsibilities which will need to be budgeted for. My vote....buy but be an "informed consumer".
THANK YOU EVERYONE for your great advice!!!
I do have a few updates since I sent Kristen that email, but my decision has not yet been completely made up:
1. I have an awesome loan opportunity because of my good credit score that provides a 100% loan with no PMI at 4.2% interest, which would bring my monthly payment from $1150.00 to about $975.00 a month.
2. The sellers agreed to pay 100% of my closing costs if we were to move forward.
3. My roommate now is a dear friend whom I have grown up with, and she plans to continue to live with me and pay $450 in rent per month plus half utilities.
4. The sellers would include a one year home warranty, which would allow me some time to sock away more savings.
These are things that may or may not affect your advice, but I did want to throw that out there.
Kristen and all you readers are THE BEST!!!!!
I would suggest you keep renting--advantageous loan rates are designed to get you to buy now, that's their point. Most financial advice I've gotten is that it is generally difficult for people to pay more than 30% of their income in housing costs so paying a mortgage of $1150, when your income is $2,900, is not only above that but also leaves no wiggle room for your mortgage rate to ever increase (it of course will one day) while your income also won't likely go up.
Reducing the cost to $975 and having a renter is a game changer but I hesitate to recommend to anyone who has no savings that they should invest in real property, especially if they are relying on rental income to fill a gap already.
The loan IS available to me because I am a teacher and considered moderate to low income (thought I certainly don't think I am low income!!)
We got one of those loans too, and ended up with 4.5% interest rate. We are most definitely not low income (at least I don't think!) but apparently we were well-enough within the range to qualify, and I'm not complaining!
If you were going into this with a house already picked out, I'd say you already made your decision...
I would wait as well. If you're going to be debt free soon start focusing on saving your money for the down payment on the house you want. You can also move into your own place without roommies and see how you like the idea of having larger bills to pay, sort of as a test. I've known people who have done this before buying a house so they could gauge their ability to pay a house payment.
Such an individual decision. To me, home ownership is always an investment (usually long term and one of the best), and as such, this is a great time to invest in real estate. But as some have said, you need to invest with knowledge and understanding of what you are doing. Read, read, read and save like crazy. We bought our first home when we were in our early 20's, moved up when we could, and were able to buy a home outright in our late 40's. Now in our early 60's, I can tell you it is extremely freeing not having that house payment. No pair of shoes, restaurant meal, new car or gadget is worth as much. Look into your future, and set a goal of financial freedom. There is so much help and information out there to accomplish that.
Claire, you and I are in similar situations. I am about the same age and have roughly the same monthly take-home pay. And I, too, have the itch to buy. The housing market remains in the buyer's favor, and I hope I don't miss out on that. But more important, in my view, is to be ready (and not merely enthusiastic to take advantage of the great buyer's market).
Like The Frugal Girl and others have posted already, I would try to accumulate more in savings. I know I have not done so well lately in reaching my savings goals.... If I were more serious about buying in the near term, I would make myself stick to a monthly budget and put away a larger set amount each month to my various accounts (savings, money market, etc.). I know buying/owning would be a far more costly endeavor (likely loaded with unanticipated costs) than renting.
I just got out of a relationship and am not seeing a new one on the horizon, so I am nowhere near getting married and starting a family quite yet. I hope marriage and a family are in my future, after which time I believe I will be in a better place from a logical and emotional standpoint to own rather than rent. Plus, there would be two incomes in such a scenario to go toward paying off the house. 😉
I also recommend the online calculators for determining your costs when buying. Very handy tool when you're trying to get the numbers straight. Good luck.
Claire, This sounds like a pretty sweet deal to me. BUT I would read over the documents and find out what would happen IF you were to seek opportunities elsewhere and teach elsewhere or do something else for a living. Would your mortgage be "called" OR would you have to pay all the "discount" back? One last thing....get a home inspection from a reputable inspector. That way if he/she sees flaws OR inconsistencies you know what to expect down the line. May want to seek out a computer model that will allow you to plug in the numbers to see how you would benefit tax wise from being a homeowner. It may surprise you...Best of Luck!
I believe that before buying a home you should have a ~15-20% downpayment and a STRONG emergency fund in place. Our financial adviser recommends we always have the equivalent of 3-6months of monthly expenses in a savings account only designated for emergency. In other words, you should be able to live without a paycheck for 3-6months in case of an illness or job loss or any other emergency.
FG- Totally what I would say. During college I got many good nanny jobs and kept it frugal so by the time I graduated I had a very large sum just in savings. THEN, when we got engaged (my husband and I) we asked around and the rent each month would have been MORE expensive (on a monthly basis) then if we bought. So now we have a perfectly lovely new house. But it is was only possible because: of the market where we live AND because we saved up ALOT for the down payment. 😉
Like many others here, I agree that you should wait and save up as much money as possible.
Owning a home is more than just a mortgage payment. You also have to worry about home repairs, property taxes and more.
Personally, I would not buy a house without at least 20% down, plus extra money for closing costs and a bit more for unxpected expenses.
A general rule of thumb is that your rent/mortgage payment is not suppose to be more than 28-30% of your monthly income. If it exceeds that you are more likely to be in a bad financial situation and not able to meet all your other obligations. Currently my husband and I are in the process of buying our first house and there is a lot that goes into it - closing costs, down-payment (unless you pay private mortgage insurance or use a USDA rural development loan or an FHA loan). The main reason we decided not to rent - we can get a 3-4 bedroom (older) house for the same amount we'd be paying for a 2-3 bedroom apartment. However, if we could have paid significantly less for rent we probably would have went that route.
There's also the angle that you are single; one of these days, you may meet and marry someone whose job requires you to move to a different area of the country; the housing market for sellers now is horrible! I would save for quite a while.
I think that it can be a great situation for you to own your own home and have a place to call your own. My husband and I are looking at that as well and someone suggested that we figure out what it would cost per month with all the taxes, insurance, loan payment, and a modest contribution to a house maintenance account. Take that amount and put it away into your savings account for 6-9 months. If you can completely afford it for 6-9 months straight without ever running into trouble and not being able to comfortably put that money away, then you could consider going ahead with buying a home! Not to mention, you have a down payment saved or a decent start to a good savings account! That's my thought on the whole thing...not sure I agree with everyone telling you to wait around for a guy and the fact that you may move. Life has a way of working out and you gotta live life now instead of the "what ifs" in the future. 🙂 Good luck!
Here's some thoughts.
**I'm a wuss. If I was a single lady- I wouldn't want the responsiblity of a lawn mower, snowblower etc. I don't mind lawn mowing anyway- but the equiptment needed for them scares me. Shoveling 2 feet of snow from a driveway really stinks! you could get around this by choosing a condo-I can't tell if this is what you have picked out or not.
**There are a ton of expenses as a home owner that are totally your responsiblity. I doubt the roomate will pitch in when the furnace goes out, a storm damages your roof and it needs replacing, etc. I personally would be uncomfortable without savings in this case. If something breaks and needs to be fixed what are your options? Are you handy- if you are a homeowner, you should be a little handy around the house.
**You would more than double just your payment. If you aren't saving now, where will that savings come from when you are paying more?
**I wouldn't rely on the roomate's income. If she moves out, you are still locked into a 30 or 15 year committment. Chances are she won't be with you for that long. Will you always want a roomate? Do you want to be a landlord_ renting out your space is different than splitting apartment rent.
**If you can buy with monthly payments similar to what you are paying now- it's a good deal to buy rather than rent. Interest is low (my banker thinks it will stay low for a while though), and there are some good buys to be had.
Good luck!
Aside from the financial calculations, I think Claire (and all of the rest of us in different ways) should make the best decision without giving in to peer pressure! For a long time "conventional wisdom" has said that a house is a great investment. That is not true for everyone! Likewise, many people think buying a house is the next milestone in adult life. Home ownership has advantages, but it is not a perfect fit for everyone.
your home should be an asset not a liability. In this economic climate and a declining US dollar. Think. Buy below your means. double payments if you can. A home is great for your family and children. If you can buy land suitable to growing crops and with a well, that would be a plus or save up towards that end.
Great posts as usual. I think that renting is great due to they pay for the upkeep and you do not have to pay taxes. Home ownership can be rewarding if you have the income and frugal skills if not you will end up in foreclosure like many people now a days. You are lucky to be gifted in home economic skills.
Claire - I would agree with most that renting is more advantageous for you. Yes, it sounds like you can get a great loan but there are soooo many additional costs when owning a home, property taxes, repairs, maintenance etc... My husband and I just sold our home and moved into a rental. We wanted to live in a better neighborhood and larger house and the only way we could afford that is to rent. Many people believe that owning their own home gives them so financial security but I have to say that's not the case for everyone. I firmly believe that life is a rental - we're only here a short time and whether I own the piece of property I live my life on or not doesn't much matter in the end as long as I'm happy.
Claire, another possibility would be to buy a duplex. You would be purchasing an investment for future residual income. Live on one side and collect rent from the other. Use the rental income to pay the mortgage or put it in an escrow account to pay taxes and insurance. When you've saved a fair amount, pay down your principle. In a few years if you decide you to buy a home you can use rental income to offset your mortgage. From my own experience, we bought our investment property while we were still renting. That rental income helped to offset our mortgage payment which has work nicely for us. There is a down side to being a landlord but going to the bank to make deposits every month is a big plus!
In this situation its best to rent! Most single women in my area buy condos and town homes - so a mortgage with a small downpayment would be about $700. Splitting that with a roommate would be ideal...there's some nice town home communities! My husband and I recently had this same dilemma but for us, buying was a better option. Our mortgage on our home is lower than the price of our rent (it was being raised over $100/mo!) in our townhouse. We thought of moving to a cheaper apartment but with 3 pets, our nonrefundable and refundable deposits for a new place would have wiped out a good portion of our savings that we used instead for our downpayment.
Since your cost of renting is so much lower than owning, I suggest you contiue to rent. However, take the difference between your rent and your estimated home owndership cost (sounds like that's about $800 monthly?) and direct it into a savings account. This will
1) Help you understand what your lifestyle would be like financially if you do decide to buy
2) If you decide the buying is for you, do this long enough and you'll have your 20% downpayment!
3) Even if you decide that buying will never be for you, you'll have a nice stack of money saved up that you can use and invest in other ways. Remember, real estate is not the only investment out there and it's not the right investment for everyone.
Rent, rent, rent! There is nothing like the flexibility and freedom of renting, especially when you're young and kid-free. Keep your rental and sock away a nice down payment.
Also, your hypothetical monthly mortgage amount ($1500) seems high to me, considering that you make $2900 a month. That's a little over half your income going toward simply keeping a roof over your head. That leaves you with just $1400 to pay all your utilities, put gas in your car, and feed yourself. Odds are you'd have very left over to save (and saving for emergencies is absolutely essential when you own a home), not to mention having nothing left over to spend on fun for yourself. I have a number of friends who are "house poor" -- they shelled out big-time bucks to get themselves into lovely, spacious homes that they thought they wanted. But then, they end up finding that they have NO extra money at the end of the month for fun purchases, or for meals out restaurants, or for a weekend getaway. I'll tell you what, after a few months of living that way, my friends don't feel nearly so warm and fuzzy about their big expensive homes.
Claire--its definitely not cheaper to buy unless you stay in the house long term (10 or more years). Without a significant down payment and an emergency fund, I would discourage purchasing a home. At this point, renting really appears to be your best option because your situation could change so quickly. You may meet someone, get married and move to another state or your parents could end up needing you to move in with them, etc. Then you could be stuck with a house that may not sell or that you owe more on than its worth. I believe the real estate market has not hit rock bottom yet, and will remain a buyers market for quite some time (probably another 1-1.5 years) due to low interest rates. I don't think you've missed an oppportunity.
I convinced myself 11 yrs ago that I was flushing $ down the toilet to keep renting. I wish now I hadn't bought though I'm honestly a bit mixed. I'm not a handyman - I have to pay to have stuff fixed...the townhome association is very picky now..taxes are going up and the school district is terrible(no kids thankfully but no one wants to buy here now)...feel trapped...I do have more space and it's 'mine' adn I can have 2 big dogs and not worry about 'the rules' other than I'm limited to 2 and I pick up after them and keep them from being a nuisance...but I do miss the freedom of being able to just find another apartment and friggin' move to another part of town.
take a look at your entire situation - do you want your own space? why? are you able to fix stuff? pay to have it fixed? have a bunch of handy male friends(or female) who are handy and willing to deal with your repairs? are you planning to stay where you for years and years and years - enough to ride out a bad economy/housing market? do you like to travel a lot - be gone a lot? apartments are generaly easier for this type of lifestyle. do yo uwant to do yardwork beyond the occasional flowerbed?
the only reason I would want to buy a house if I were doing it over are 1) dogs - I would like a house with a yard for dogs only - not for myself 2) space- I do have more space for the monthly mortgage payment than I had with my apartments
I'm currently in my senior year at the University of Maryland UC Asia and I just finished up a personal finance course (400 level).
There was a lot of conversation about this topic in that class and most people thought renting was becoming the "New American Dream!" Housing markets are still so volatile and YES if you don't have a savings you could be taking a big risk. However, investing in a home is a great investment for the long run. You just have to make sure you are making a smart purchase first and not over extending yourself.
Our Text Suggests - Your next Five Years:
In the next five years you can start achieving financial success by doign the following related to obtaining affordable housing:
1. Read your leases and other real estate contracts thoroughly before signing. (This got me into trouble - not understanding the mortgage loan agreement - can you say "Adjustable Rate" - oh boy!)
2. Save the money for a down payment w/in a tax sheltered IRA account. (After 5 years of savings up to $10K can be withdrawn penalty and tax free as long as it used towards a first time home purchase).
3. Get your finances in order before shopping for a new home by reducing debt, budgeting better, and clearing up anything that keeps you from having a high credit score.
4. Buy a home as soon as it fits your budget and lifestyle so you can take advantage of special income tax deductions and price appreciation over time. (but keep in mind all the other purchases that come along with the home - I bought a house with a huge yard and didn't even own a rake! so I had to by a mower, rake, a hose, gloves, etc)
5. If you make a down payment of less than 20% on a home, cancel private mortgage insurance as soon as the equity in your home pushes the loan-to-value ratio down to 80 percent.
I hope this helps! I know taking that class sure did open my eyes to SO many things! We are on budget that actually works for us now and are still able to save for all of our future goals.
Rent! Rent! Rent! A bunch of others have given great logic as to why you should rent and I struggle with it too; the idea of owning MY OWN home is one that is hard to resist. Although it feels like you're "throwing away" money when you rent, you're really not. By renting, you're saving up your cash and ultimately your freedom. If you spend a year continuing to rent, with the money that you're saving up (rather than paying mortgage), you have the option to put down a big fat down payment so your monthly costs are lower (which means more money to play with for the day to day), OR you could buy a bigger or more perfect home, or you could furnish your home exactly the way you want it. With the market the way it is, there is still no guarantee that house values will appreciate. It could go either way.
Wow... what an amazing deal! Is that a fixed rate? I'll go against the grain and I would buy. I would just live lean for the next few years to build up a savings plan and a repair fund. Home warranties are nice as they cover a lot of items in the house but read the policy as they don't cover everything. Plus, you can renew them every year for as long as you want. The thing that scares me about people who rent and I'm not speaking of people on this blog because they tend to be savers. But I know many older people in the retirement age that don't have anything saved and do not have property to sell to help pay the bills. They are living social security check by social security check and are depressed with no funds. Granted they didn't save when they were working and now are in a bind because their income dropped dramatically and they must pay rent still. So, I think some people are better off if they are forced to save. One way to save money is to own property. Is there someone in your family that you could talk to about finances and they could talk about long term goals (mainly, retirement goals)? In 30 years you'll be 60 years old and it would be nice to have a home paid for full and clear and then, you could spend your retirement money on things you enjoy instead of renting. There are many things you can do if your job changes or you decide to move, you can easily just become a landlord yourself. But you really have to look in the area to make sure rental income would cover your mortgage. Everyone had great suggestions about saving, etc... If you decide not to buy at this time, I'm sure there will be other low interest rate opportunities. But first, I'd figure out my financial goals and then, figure out what you need to do to obtain them. Good luck!!!
Go with the majority on this one - RENT. I can speak from experience. When you own your own home, you have unexpected repairs (plumbers, heating & air, roofers, etc.) that do not come cheap. For instance, our air conditioning unit went out recently, and it cost $3,500+. If I was renting, that would fall to the landlord. You will have annual insurance premiums, which you pay annually or pay additional to spread it out over the year. This adds to your monthly costs. You will have property tax due annually, which usually runs several hundred to a few thousand dollars. You will have yard expenses which include mowing, edging, blowing, cleaning gutters, trimming bushes, planting flowers, etc. Do you have all the necessary equipment (and desire) to maintain a yard or can you afford to have a lawn service? If you buy in some areas, they have a homeowners assocation fee that is usually due quarterly. You will have to replace appliances as they fail. Your utility bills will most likely be more costly because a house you buy is usually larger than your rental, therefore you will have more space to heat and cool. Will you need to pay for a security system? I suggest you look at the mortgage payment, then add the insurance, taxes, a minimum $100 monthly repair, yard maintance costs and see if it still looks appealing. Be honest and don't try to skew it to look favorable, because life happens and you can expect unexpected expenses. I recommend you keep renting until you have at least 20% to pay down and have six months of salary in your savings account. And - will you still be able to afford the other things in life that you enjoy? Travel, clothing, hobbies, etc? And having the flexibility to easily relocate is worth a lot - situations change. Home ownership is the American 'dream' that is highly overrated. You pay, you pay, you pay.......
Rent, without a doubt. Owning is not the be-all and end-all it's been touted to be - the past 4 years should be enough to show that. Plus the costs of ownership are a lot more than just the mortgage: maintenance, taxes, time, what if you want to move?, materiels to fix, possibly condo HMO fees...
Wow, I just wanted to make sure that someone pointed out that you get to deduct your mortgage interest AND your property taxes from you income when you pay taxes which will make a fairly significant difference in how much you pay in taxes. What you really need to do is to figure out how much you will pay in taxes with and without the deductions. Many years ago, when I had a mortgage payment of approx $1100 a month - similar to you - I recall that I did the math and figured out that I was saving approximately $300-400 a month due to the tax break - bringing the "actual" payment down to $700-800 a month. Definitely have to do the tax math and then use those numbers to help with the decision!