Buying, Renting, or Failure to Launch

What’s on your mind?

Many people often find themselves at a financial crossroad. You might have graduated college recently, and after working for the last few years, must decide what to save up for in order to build a stable financial future. Perhaps you have to relocate for work or family, and subsequently, you must choose a new dwelling. Finally, it is possible that you are simply tired of hopping from apartment to apartment due to the high moving costs and the rising rent prices every year. At any rate, the important decision of housing hits each and every one of us at some point in life.

A multiple choice question with the best answer for you.

Calculating the numbers to help you decide whether to buy or to rent is an easy first step. Take the current sales price of a home that would fit your needs and divide it by the annual cost of renting a similar house. For example, if the price of a 3/2 single home with a garage is $279,000 and the monthly rent for a similar place is $1,500 ($18,000 annually), the number you would get is 15.5. This ratio is close to the U.S. national average of 16, which has been the case throughout the past century. The lower the ratio, that is the lower the purchase price relative to rent amount, the more it makes sense to buy. Of course, besides buying or renting, there is always the option of living with your parents.

Every path has a cost.

In the process of picking between buying and renting, you must also reflect on the costs involved with each option. Investing in a home requires a down payment, closing costs, possible mortgage interest charges dependent on the amount of down payment, insurance fees, and property taxes. On the flip side, taking or continuing on the renting route does not demand any of these costs but it also does not offer the benefit of ownership. Ultimately, you need to remember that the total out-of-pocket sum that you will incur when purchasing a home can be compensated by the appreciation of the home over the years. And after all, by paying off a mortgage you are investing for yourself instead of giving money to landlords with nothing to show in return.

Which route to a peace of mind?

As you consider buying your own place, you also need to evaluate your credit options. You must have established a strong credit history to ensure a competitive mortgage rate. This is no easy feat and it does not happen overnight. Once your credit report card is in good standing, you need to review your mortgage options. We all remember the housing bubble of 2002 to 2007 when no-down-payment or interest-only mortgages allowed many people to take on loans they could not afford. To protect yourself and your ability to pay off your house, a fixed-rate mortgage with 20% down payment with varying terms is the better choice among all.