2014 is here and resolutions are top of mind. For many of us, the great American dream still revolves around home ownership and it’s a natural step that many GenYers are finding themselves faced with. GenYers today are looking to build equity, save money on rent and are doing their research on the benefits of owning versus renting. Whether you’re married or single, when it comes to the rent vs. own dilemma it’s important to consider these 5 questions before making a choice to buy.Note: If you’re paired off, ensure you have a detailed conversation (or two) with your partner about the below. If you’re single, reflect on where you hope to be.
Do you see yourself getting married, changing careers or moving out of state in the next few years? What about incurring large expenses such as having children or buying a new car? Consider your current job and the stability associated with it. Can you expect to be there for the next few years? Although you may feel the need to purchase a home now, if you’re facing any big transitions in the 2-3 years ahead, consider renting until the dust settles and you have more stability. While you may be able to sell a home that you purchased just a few years ago, being faced with having to make a quick decision or sale could hurt you financially.
Whether you’re using a gift, loan from parents or savings to cover the down payment on a home, it’s important to maintain an adequate emergency fund for repairs and to factor items such as monthly maintenance, home owner’s association dues, property taxes and insurance into your budget. Also be sure to consider if you need to do repairs, paint, purchase furniture, appliances or fixtures, and factor in closing and moving costs into your expenses. A good rule of thumb to consider is that no more than 28% of your gross monthly income should be used to pay for PITI (principal, interest, taxes and insurance). The good news with a home purchase is that you’ll be locking in a consistent payment each month that won’t be subject to ongoing increases you may have faced with rent.
Your credit score plays a big role in terms of the type of financing and mortgage rate you’ll qualify for. If you haven’t checked it in the past year, use a website such as annualcreditreport.com or Credit Karma to get some insight into where you stand. Keep in mind that your existing debt load could cut into your ability to qualify for a mortgage. Owning a home can translate into some great tax benefits such as tax-deductible mortgage interest and property taxes, deducting any points paid to obtain a mortgage and getting to keep a piece of your monthly payment in the form of equity. Whereas with renting, you won’t get back any of your payments and their aren’t any tax benefits associated with it.
To start, does the location work for you? Before buying in a location of your desire, first consider items such as an added commute to work and increased cost-of-living for items like gas and groceries. Step back and look at the prices of homes in the market. Are they on the rise, holding steady or declining? What type of inventory is available in your desired community? Look back a few years and see what’s transpired over time and understand where you may be buying at in the “cycle.”
Sit down and think about your day-to-day life as well as your weekends. Are you constantly on the go, visiting family and friends, traveling and experiencing the next greatest thing or are you happy staying in and relaxing at home? Understand that there is a time and financial cost associated with home ownership in terms of maintenance, upkeep and repairs. Are you willing to do it yourself or will you factor in additional expenses for items like gardening and pool cleaning? How will you handle home repairs as an owner instead of a renter? Expectations will be different and your new neighborhood may come with some strict landscaping requirements depending on the type of HOA you’re faced with. Ensure that you’re up for maintaining yourself or that you have a plan in place if you’d like to outsource.
If you want to crunch the numbers in more detail, check out this buy vs. rent calculator and if you’re ready to start pricing out homes, use a website such as Zillow or Trulia to get an idea of home prices and inventory in your ideal neighborhood.
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