Many young couples are deciding if they want to rent or buy? Often when they run the numbers, financially it may make sense for them to buy. But some are finishing further degrees and they don’t know where they will find a job. The house they can afford now may not be the house they want to stay in.
Many couples decide to rent. Renting is right for them at the moment, even though financially, it makes sense to buy.
When pondering renting versus buying, sometimes you have to look outside of the spreadsheet to find the right answers. The numbers could tell one story, but your situation could tell you another. You have to reconcile the two and figure out what makes sense. Look at the numbers. Tally the options, and ask what feels right to you.
Here’s the big picture: mortgage interest rates are at record lows. Property prices are at 2003 levels. It’s the perfect climate to buy — but can you? Should you?
Brett Horowitz, a certified financial planner, said it’s a good environment for owning — if you can afford it. “There are low interest rates, lower property values, and rentals are high.”
But lack of cash for a down payment or a low credit score often kick potential buyers out of the pool.
Here are some things to consider if you’re trying to decide whether to buy or rent:
What works for you?
With a rental, when you’re ready to move on, you basically lock the door and leave. There’s no upkeep, and you can buy yourself time if you’re not sure you’re going to stay in an area, or if you think you’ll want to trade up to a bigger place.
Advantages to homeownership include building both equity and a credit score. Although paying rent on time at HHHunt apartment homes also helps improve your credit score.
What is your cash cushion?
Add up your fixed expenses, including a prospective mortgage, property taxes, closing costs and insurance.
It’s easy to forget all these other costs, but it’s important to make sure you budget for them. You have to factor them in to make sure you can afford it.
How much cash do you have left? You always want to keep six months of living expenses in cash, so if you lose your job, you have enough to live on for six months.
If your income fluctuates, make sure you have the cash reserves to dip into if you have a pay drop. Determine your savings rate by looking at how much income you are putting away after expenses. It should be 5-10%. If you can’t put away that much, you need to re-evaluate housing options.
Do you qualify financially?
To buy, lenders want no more than 28% of your income going to housing costs, and your debt should be no more than a third of your income.
You have to look beyond today. Will your financial picture change — do you have student debt or other obligations? Will you be able to handle the payment in the future?
How long do you plan to stay?
To buy, you should be prepared to stay in a house for at least five years to recoup your up front and closing costs.
It may make sense to rent in a desired neighborhood, then re-evaluate.
What’s your overall goal?
A home’s value will typically rise only about 2% a year over inflation. There are other investments that can do better.
The bottom line is to figure out what is right for you. Timing is sometimes the most difficult decision.
Financially the decision is easy. You crunch the numbers and get a concrete answer. But you have to ask, personally, does it make sense?