March 1, 2018
March 1, 2018
Home ownership has always been a quintessential part of the American dream. Most people imagine themselves owning a house at some point, and many young adults assume they’ll be signing for a mortgage before they hit their 30s.
Unfortunately, things have gotten a little complicated.
With the federal interest rate hike, a still-recovering housing market and rent prices on the rise, deciding whether to rent or buy in 2016 is a confusing question. Choose to buy at the wrong time, and you could find yourself staring down an inescapable mountain of debt. Continue to rent indefinitely and you miss out on the investment benefits of owning a home.
So which is a more appropriate choice in today’s economy? Read on to find out.
When everyone around you is starting to buy a home, it’s easy to assume that homeownership should be your next step as well. But renting has its advantages: You don’t have to pay for maintenance, you don’t have to worry about liability and you won’t be stuck in a neighborhood you don’t care for.
Too many people think of renting “as throwing money away.” Not so, says real estate broker Tiffany Alexy.
“In many regions right now, the housing market is dealing with very low inventory and an overabundance of buyers, which means buyers are getting into bidding wars … often offering $20,000-$25,000 more than the list price in order to get the house.”
Talk to local real estate agents and acquaintances who are in the market for a house. They’ll have the inside scoop about the market in your area and whether or not it’s good for buyers.
Even though the fed has raised interest rates within the last year, prospective homeowners are still looking at low prices in most markets. Potential buyers who are on the fence can benefit from locking in low rates. However, CFP Chris Teofilak of Index Fund Wealth Group said not everyone should be rushing out to buy a home.
“Only buy if you plan to stay in your home for at least 5 years,” he said. “Otherwise, your home may not appreciate enough to cover the expenses of selling a home.”
You can use this rent vs. buy calculator to see which option makes more sense mathematically. Even if you really want to buy, you may not have enough of a down payment or a high credit score to qualify for a mortgage. The only way to know for sure is to take a good, hard look at your finances.
Unfortunately, like most major decisions in life, there is no clear-cut answer. It all depends on your situation. If your area is being flooded with buyers, now might not be the best time to buy. Take your time to save up a healthy down payment so you can be ready when the market stabilizes again.
Those in an opposite situation, where a mortgage payment could be much lower than monthly rent, could benefit from buying a home. Remember to make sure you’re willing to stay there at least five years or more – otherwise, you could lose money on the deal due to closing costs and other fees.
If you’re still unsure what camp you fall in, try talking to a financial advisor. They may be able to look at your situation more closely and give you specific advice for your situation. You can also take some time to visit homes and see if the allure of homeownership is too much to pass up. After all, not all decisions need to be about your finances.