When Buying a Home Beats Renting
The past few years have given rise to the notion that, counter to the long-held “American Dream,” buying a house isn’t always the right decision. Some people consider their financial situation and other factors and find it makes more sense to keep renting.
But if you’re contemplating the decision, here are four signs — apart from interest rates or location, location, location — that it might be time to become a homeowner.
When it’s time to build wealth
It’s been said that paying rent is just throwing money away, and there’s some truth to that. If you’re in good enough financial shape to get and pay a mortgage, your money doesn’t go into a landlord’s pocket — it goes into your own. You’ll be building equity toward owning what could become a valuable investment.
Nothing’s guaranteed, of course, and it’s hard to predict whether a home’s value will increase or decrease in the short term. But, over time, housing prices almost always go up.
When you have the capital
Buying a home will put a dent in your finances, especially at first. You’ll need to make a down payment, and most lenders want 20% of the home’s value upfront. (There are vehicles, particularly ones backed by the Federal Housing Administration, that take down payments as low as 3%. Just know that a lower down payment means you’ll likely being paying more in mortgage insurance and carrying a higher interest rate.)
Add expenses such as earnest money and closing costs, and new homeowners can end up feeling “house poor” for a while. If you can afford these intimidating upfront costs and still have a some money left in savings, it may mean now’s the time to buy.
When you have no plans to move
If you anticipate that your career, your family or good old-fashioned wanderlust will have you looking to settle someplace else in the next couple of years, it’s best to keep renting. But if you can’t imagine living anywhere else, now might be the time to put down roots. A good rule of thumb is 10 years: If you don’t expect to be going anywhere for a decade, you’re more likely to come out ahead financially by buying a home and building equity.
When you’re looking to take control
Homeownership eliminates a lot of the uncertainty of renting — from depending on someone else for repairs to a sudden spike in your rent to perhaps the building where you live getting sold and you having to quickly find a new place. Your home is your own, and you call the shots. Nobody’s going to take your security deposit if you decide to paint the living room walls.
And if you’re still not sure, ask an expert. Financial institutions like the University of Kentucky Federal Credit Union often have programs to help customers decide whether buying a home is indeed the right decision.
Doug Gross, NerdWallet
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