Unsure whether I should rent or buy a house.
By - schikaba
The standard line used to be that buying was always better than renting but the situation these days are more fluid. There are several issues that you may want to factor in:
1) How long do you plan to stay where you are? At 26, I was going around the country to get educated/ train so no way I was going to get tied down to a house, where leaving an area would mean having to sell or rent it (both hassles).
2) Pride of ownership: Some people love being able to make renovations, plant trees, etc. without having to seek permission of a landlord.
3) Mortgage interest tax deduction: This used to be a major factor. You could deduct the interest you paid on housing off of your taxes. This is especially important if you have a higher income job and was in a higher income bracket.
4) Control over monthly housing payment: Landlords can raise your rent anytime and that can be a stressor. With a mortgage that has a fixed interest rate for say 3 decades, you know each month for decades who much you will be paying. Over time, that can be a significant cost savings.
Where I live, the amount I pay for my 2 bedroom/ bath place per month is much less than what some people now pay for a studio or 1 bedroom.
There are a lot of resources out there for "rent vs. buy" if you google.
Given you situation, you may want to put some savings off of paying student debt. Getting rid of debt is always a good thing especially if the interest rate on the debt is higher than what you could make putting it in savings. On the other hand, in some areas, the return on investment in housing can be very high: your house price may rise 30% within a few years.
I just wanted to say congratulations on paying off your car!! To own a car and $20k in savings is amazing.
Check out a rent or buy calculator and play with the numbers.
You don't give enough information to even begin to help.
I agree with playing with the numbers and seeing where you fall/ how you feel.
Consider buying a condo. They are much cheaper than houses and retain most of the benefits (ownership, freedom to make alterations, fixed mortgage) while taking on less responsibility(grounds and outside of building are maintained by condo assoc). I was a in a similar position as you a year ago, graduated college and took a 54k job across the country and had savings for a respectable down payment. I left my 1BR apartment of 4 years and bought a $155k 2BR condo and am loving it. Strictly financially, buying almost always makes more sense than renting because a home is a (hopefully) appreciating asset which you have full ownership of. Like somebody else here said, the idea that renting means you don’t have to pay for property tax, maintenance, and other homeowner expenses - just not true. Rent payments have all those costs baked in and then some more for the landlord to make profit. If you have the means, and it fits with your lifestyle, BUY.
Congratulations, you have a great start there,
things to think about when it comes to rent vs owning are,
how long are you planning to be in the area? if its less than 5 years most "pros" say rent cause the cost of a house is more in the first 5 and the cost of renting is more after 5 years (that's what I hear a lot at least)
planning a family? renting is better for singles/datters cause you can save money from having a smaller place vs planning for a family and getting a bigger house for that.
are you planning/are in a hcol area? are you liking urban life? renting might be better. but rural/lcol is is better to buy.
hm it really comes down to cost then, how much is rent for a 2 bedroom/1bath single home there? if that's more than the home loan+30%(for maintenance and saving for bad things) then owning might be better.
honestly, I love owning my home, hate the hoa, but love the view. but we plan to be where we are for 5 to 10 years before moving to our own land. so it cost us about $500/month to live where we are with all utilities and hoa.( house is paid off). renting just a mile away "in town" is for what we have (3 bed 1 bath apr 1K squf) is about $700/month plus utils.
I hope that helps. I'm no expert though. so I can get some things wrong lol.
I find it funny that a lot of renters don’t think that they are paying for taxes or repairs or the new furnace or the new roof.
The rent you pay literally pays for the taxes and the mortgage, which includes the interest and the equity in the home you’re buying for the landlord. The rent pays for ALL of those repairs, and it even pays for the vacancy in between tenants.
Sure, you won’t get an unexpected home repair bill…but if you have the tiniest ability to plan for your future, no bill/repair is unexpected.
I’m 5 years into my mortgage. My monthly payment has remained unchanged, while rents have gone up 30%.
So I rented my condo and the tenant was paying mortgage, common charges and giving me profit too. After renting for 10 years with appropriate increases they could have saved 60,000 and had equity had they owned the condo. It didnt cost me 60,000 to maintain it even considering the 5 paint jobs, appliance replacements, carpet replacements and one time assessments. Instead they had to leave with just the security deposit to find another rental when I sold it. They didnt even want to consider buying it when I offered it at below market to them.
Thank you for the humanity of considering your rent and sale profits and not prioritizing getting some more at market rate, by offering the tenants the opportunity to own.
So silly IMO.
I wanted to get rid of it. They were decent people who lived there for 10 years so I wanted to give them first chance at it. I didnt need to make a killing and I had already seen crazy appreciation over the last 10 years. What I would want someone to have done for me.
This all depends heavily on your region. And on your job and/or career path, because if you can live in a lower cost of living area, you could be doing just fine with room to grow. I imagine proximity to your family will still be a big factor.
How is your credit overall? Anecdotal, not an expert, but short version- we were in danger of displacement to build a luxury highrise. I went to my bank & asked what I needed to do to have a chance at a mortgage. Turns out ' I've never needed credit, I pay cash!' isn't super reassuring to creditors. I opened my first credit card, stayed at a low wage job with no commute to save on those costs and to have job history in my favor, saved what little we could for a bare minimum down payment, and blew up my credit score enough to get a mortgage on a house with newer systems on an acre a little out of the big cities in Michigan.
Regardless of your credit, that student loan is a stone on your neck when a creditor is considering your "debt to income ratio." I'd be pouring money on that fire while there is plenty of water around you. Life happens the more you tare alive, perhaps now when you have a lot of flexibility would be good to whittle that down. Even if you are only waiting out the wacky housing market until next year, I bet you can take a not insignificant chunk out of that debt in the meantime. A financial adviser would be the one to let you know where your liquid cash should be going.
Overall, everybody's snippets of advice are good based on what you've said. Your tentative 5 or 10 year plan is a make or break on some options, but I think what I've mentioned pertains to '*can* you get a mortgage?'
Best of luck, you are young and are making between a just-getting-by wage and a 'Hey, this isn't so bad at all!' wage depending on where you are, and being responsible will take you far right now.
Just based on your financials I would say rent. 50k a year is not enough to carry a mortgage, utilities, taxes, and potential HOAs for a decent property--especially in this market.
The general rule of thumb is that you shouldn't be spending more than 20% of your net monthly income on housing costs. In this case, a 50k salary with say a 70% retention would be $2,900 a month in salary. Based on the previously mentioned rule, you'd only be able to afford to spend about $1,000 on housing. Using that 20k as a down payment the most you could afford is a 100k home, which would be too much for you to afford given the 30% rule, and that would exhaust all of your savings.
Rent for now, with so many people moving out of homes and COVID cases resurging, you might be able to find a relatively cheap apartment in your area, I found a 1BR apt in a small city of 60k for $850 a month, I only pay electric. If you don't want to spend all of your money on rent, find a 2BR and a friend or roommate you trust, and live with them to split the bill.
Honestly, if you rent you will be pretty close to what the monthly mortage payment maintenance taxes will be for a comparable a rental. Example: If your budget for housing is 1000 rent find a mortage for around 850 with taxes and insurance in an escro account. That will leave 150 a month for maintenance or 1800 a year. Obviously depending on where you live will make the numbers change. If you own a home you will have liquidity for the future. Exapmle: 200,000 home 40,000 down payment 20% loan value 160,000 mortage. After 10 years or so you decide to sell say mortage value of 120,000 remaing. You sell at 200,000 again. You now have roughly 80k it will be less after taxes closing cost ect. If you rent for 10 years you won't have to worry about maintenance taxes ect but you will also have no capitol left over. That's being said markets are pretty high right now. Waiting to buy at the right time is a great idea so waiting might not be bad. Long term owing a home will always be better for most. In my opinion.
>Exapmle: 200,000 home 40,000 down payment 20% loan value 160,000 mortage. After 10 years or so you decide to sell say mortage value of 120,000 remaing. You sell at 200,000 again.
This assumes that the value of the home stays consistent despite the fact that we're in a seller's market for homes. Much more likely that when this low interest rate trand ends that home prices will drop.
Based on some simple rules of thumb like 20% down payment, and housing costs of 30% or less than net monthly income, OP can't currently afford a house unless he bought an incredibly poor condition home with no land. $50k salary, even with those numbers in savings, just isn't enough to constitute buying a home for OP.
Say OP decides to use his entire savings at the moment to put a down payment on a house, and they adhere to the 20% down payment rule, they can only purchase a $100,000 house and now have zero savings. If they don't follow that rule, they're spending more every month for a mortgage insurance. If they adhere by the 30% of net pay rule, they can only afford about $1,000 a month in mortgage payments, utilities, insurance, and property taxes. OP would literally be buying a home they cannot afford just for the sake of having 'equity'.
If I was in your situation I would rent first for a couple years keep saving and find that perfect affordable home. Housing is very expensive right now anyways. Just be patient. Don’t let others make your decision for you.
What year will housing prices drop? Do you know how much they’ll drop?
Nobody knows the answer to this if they did then they would be billionaires
I get that, I was wondering how you could say “housing is expensive right now”. Housing has gone up, but no one know what happens next. It could never be this “cheap” again.
Waiting a couple years and renting could be very bad advice. (Or could be great advice, who knows).
For us, our mortgage is about the same as renting an apartment and home prices are rising so rapidly that we jumped on the home buying train to avoid not being able to afford it. We do live in one of the hottest real estate markets in the country though, and a lot of apartments actually cost more than our mortgage, but that may not necessarily apply to your area.
Before making any big decisions, I would say stay with your mom until the end of January when the student loan payment pause ends, and take whatever you have been putting into your savings account and throw it at your student loans while they are interest free to help bring that principal down. I had $26,000 at almost 7% interest about three years ago, and with that high of a balance and interest rate my minimum payments did nothing. Unless your loans aren’t federal and they aren’t paused right now. Even then I would encourage you to stay with your mom for at least six more months to save a little more for a down payment and try to pay down your student loan balance to help your debt to income ratio.
Nobody has mentioned it, but use some of your savings and get that student loan paid off before buying a house. You'll qualify for a larger mortgage and you'll have an easier time making payments. You don't want to be 30 and still paying that loan down. Do it now while your costs are low.