For decades, most adults aspired to own a home. The family home was both a sense of pride and a sound, safe investment. Then the housing market crashed in 2006.
This shell-shocked a large segment of the population, especially younger generations, into believing that home ownership was too risky and not worth the investment. Renting became the safer play.
However, the housing market began to recover in 2012. Today, mortgage rates are still near historic lows and home prices by and large are increasing as they should – at a very modest pace. Although market conditions seem to indicate that now is a great time to buy, many are still hesitant to make the leap. Or are they?
According to a recent report from the National Association of Realtors, people age 35 and younger represented 35 percent of all home buyers during the past year, which was a larger percentage than any other generation. Two-thirds of these buyers were first-time home buyers.
Clearly, Millennials aren’t averse to buying homes. In fact, a separate survey from Zillow found that 65.3 percent of millennials associate home ownership with the American dream, and 56.1 percent expect to buy a home within the next five years.
Does that mean you should? Well, that depends. Sure, there are online calculators and surveys that can help to steer you in the right direction, but the decision to buy or rent depends on the individual. Let’s take a look at the pros and cons of buying a home and renting.
The Financial Argument
When you pay a mortgage, you’re building equity. You move one step closer to owning a piece of property. You can use that equity to buy a new home, finance a major purchase, or pay for your children’s education.
Of course, there are parts of your monthly mortgage payment – property taxes, homeowner’s insurance, mortgage interest, and possibly private mortgage insurance (PMI) – that never come back to you. However, if you have a fixed rate mortgage, only your property taxes and homeowner’s insurance will increase. Also, some portion of your mortgage interest is tax deductible.
When you rent, you’re basically trading money to live somewhere for 30 days at a time. Unless you live in a rent-controlled area, rent increases can be unpredictable. You won’t have to pay for routine maintenance costs and upkeep, but when you move, you won’t get any of that rent money back, except for your security deposit.
Do you plan to live in the same area for at least three years? Are your job and income stable? Do you plan to start a family? Are you willing to devote time to maintaining your home, from mowing the lawn to painting the bedroom? Are property values steadily increasing in the cities where you want to live? If the answer to these questions is “yes,” buying a home might make the most sense.
If you think there’s a decent chance that you may want to move or look for a new job in a different area relatively soon, renting is the more flexible option. If you like having all of your nights and weekends to do as you please, renting also comes with less responsibility.
Back to Finances
In some cases, the decision to buy or rent might be dictated by your financial situation, not your personal preferences. For example, if you don’t have money for a down payment and you’re carrying a high balance on your credit cards each month, you may have to rent until you’re better prepared financially to qualify for a mortgage.
On the other hand, if you have little debt, pay your bills in full each month, and have money set aside that you can use for a down payment, you could be ready to buy a home.
There is no magic formula that will tell you if you should definitely buy or rent. Many people assume that they won’t qualify for a mortgage, but are then pleasantly surprised when we explain the mortgage programs that are available. If you’re not sure if you should buy or rent, let’s talk. We’ll explain your options so you make the best possible choice.