When adulthood approaches, the usual first step to venturing out on your own is finding housing. While most people start by renting a place, the big question that invariably comes up is, “Should I rent or buy?” This is an incredibly loaded question that can cause several more questions to pop up. To help you sort through this process, we’ve put together some tips and information to help you make an informed decision.
No matter what, you’re going to spend money on housing.
When you rent, 100% of that money is going into someone else’s pocket. Outside of your security deposit, you most likely won’t see that money again. When you purchase a home, you have the opportunity to get back the money you’ve spent on that property.
Every payment you make to your mortgage loan means that when you sell your home in the future, you’re only giving the bank what’s left of your loan, you get to walk away with the money you’ve already paid off, plus any surplus (if your home appreciated during that time). Since you have to spend the money on housing, why not choose the option where you may get some of that back?
The 30% rule.
Did you know that when it comes to housing costs, the rule of thumb is to keep your rent or mortgage costs to 30% or less of your annual gross income? Most Millennials believe that renting is a more affordable option, however, according to a 2018 report from RentCafe, using data from the US Census Bureau, they discovered that Millennials will pay about $92,600 in rent by the time they hit 30. That’s 45% of their overall income during that same amount of time!
While there’s no guarantee that a mortgage will be the same or less than a rent payment, even if you’re still hitting that 45% amount, a good amount of that will most likely come back to you when it’s time to sell your house.
So where does that leave us? Here are some questions to ask yourself before you decide to purchase a home:
- How long are you planning to stay in this area?
- If you’re planning to leave the area in which you’re living within 2 to 3 years, it’s probably better to rent than buy. However, if you’re going to be somewhere for even 4 or 5 years, it’s most likely worth it to buy as you’ll regain that initial investment.
- Are you comfortable and able to make repairs and handle upkeep?
- Are you in a position to quickly pay off a hefty home repair? If not, are you handy and like to do these things? Home repairs often have a high price point with them, so this is an important piece to consider when thinking about purchasing. You’re the landlord, so these duties fall to you.
- Are you able to put 3% – 5% down for a home?
- While you no longer need the full 20% down payment to purchase a home (check out this article for more details on this), you still need some money down to show the bank you’re able to save and manage money properly.
Still not sure if you’re ready to make the move from renting to buying? Give one of our lenders a call today. We’ll shoot you straight and help you weigh your options. Buying a house is a big decision, and we take it as seriously as you do.