With low mortgage rates and the desire to attain financial stability, the millennial have radically change the scenario in real estate. According to a survey by Realtor.com, about 65 percent of the people age 25 to 34 plan to buy in the next three months. This would certainly bring a boom in the buying trend. But is buying always the best option?
New generation is already questioning the norm that expects you to buy a house once you are ‘grown up’. For some, the equation that house ownership is equal to financial stability appears like an assumption rather a calculated logical conclusion! A lot of people love the freedom that comes with living in a rented house – giving them all the flexibility to move to a new city for a more lucrative job or a better partner! But then, renting a house will not make you eligible for tax benefits. Neither will it help you to build equity.
There are many factors at play that can help you decide whether you should buy or rent a house. Let’s take a look.
Best scenarios to buy
1. Assess your Budget: While you chalk out your financial plan, make sure you keep room for the direct costs as well as the additional costs of owning. You should of course be able to comfortably pay the down payment and closing costs while taking care of the hidden fees like utilities, maintenance and repairs and property taxes. And did you take PMI into account? Want to know what is PMI? Read our article at What is PMI and how does it work?
2. Long Term Vs. Short Term: How long do you see yourself staying in the house? If your plan is to hang in there for the next five years, it makes sense to buy a house to get ROI. After all, the only way to recover your transaction costs is to stay long enough, which is anything for five or more years.
3. Benefits of being an Owner: Being a home owner comes with many financial benefits. You can build equity in your home, something that isn’t possible with a rent payment. And you can save on your income tax. As homeowners, you are eligible to deduct mortgage interest payments and property taxes from your federal income tax. This considerably brings down the final cost of home ownership. Read here to know more on Tax Benefits of Owning a House vs Renting
Best scenario to rent
1. Limited Budget: If your case is of having limited funds, it may be wise not to get into a financial crunch by buying a house. Investing in buying a residential property goes way beyond merely paying the down payment. If your pockets are not deep enough, then renting may be your best option.
2. Unstable Employment: If you perceive any uncertainty in the professional horizon, it is best not to get lured by ownership of house. You will not be able to recoup your investment if you stay for a short period. If your job situation is unpredictable, it is better to focus on getting a better job while you save enough cash for future investment and emergency funds. Similarly, if the nature of your work is such where you could be sent away for a temporary assignment to another place, go for a rented apartment.
3. Transitory Life Situation: If you are in the transition phase of life where you may be getting separated or about to get divorce, it will be judicious to rent out a house.
Financial literates can only debate over the pros and cons, but the ultimate decision lies with you. Buying or renting, it is a crucial financial decision. One wrong move can shake your balance financially. So do your groundwork well, do a reality check with your savings and then decide what will be your smart move.