“You’re married, so you HAVE to buy a house!”
“Buying a house is cheaper than paying rent.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
“There is something permanent, and something
extremely profound, in owning a home.”
Kenny Guinn
Kenny Guinn
"A
man builds a fine house; and now he has a master, and a task for life; he is to
furnish, watch, show it, and keep it in repair, the rest of his days."
Ralph
Waldo Emerson (1803 - 1882)
So how do we decide when to buy a house or rent one? It is a
common misconception that you must buy a house as soon as humanly possible to
avoid paying rent to a landlord. It is
hard to fork over $1,200 a month and not even own the refrigerator your food is
in. Nevertheless, we (as in married people or people over 25 or the American
culture in general) need to be careful not to get wrapped up in the hype of
buying a home if we are not ready. It needs to be a good financial decision as
well as a good life stage decision. This may mean you buy your first home at 19
or at 50 but we need to look at the quantitative and qualitative aspects of
what buying a home really means.
Here is the math associated with buying vs. renting in
Colorado:
Renting
Average rent: $1,200 per month
Average renters insurance: $14 per month
Total cost per month: $1,214
Buying
(15 year fixed rate on $175,000 home with 20% down):
Mortgage: $950
Taxes: $116 per month
Insurance: $83
Repairs/Maintenance: $145
Total cost per month: $1,296
In this situation it is almost the same cost whether you buy or
rent, so how do we decide which is best for our situation? We need to look at
the non-math side of things. It boils down to risk vs. reward.
Buying
Added Risk-There is a BIG risk involved in purchasing a home
and this risk weighs on you. Owning a home can be a big blessing or a big
curse. A lot of this depends on if you are financially and behaviorally able to
take on this type of risk. If you have a load of debt and have not gotten your
spending figured out, you will find that owning a home is not fun. If you
cannot put a 20% or more down payment on a home, you will be paying escrow, PMI
(Private Mortgage Insurance) and a higher interest rate.
Even if you have these things, you must be willing to accept
the risk and have enough of an emergency fund in place to handle ALL the issues
that come up with home ownership. From personal experience, I can say that pest
control, broken hot water heaters, and decrepit deck repairs can cost a pretty
penny, so be prepared for the roller coaster ride of home ownership. Do the
research, get a good realtor, and don’t let your emotions or what others tell
you sway your decision to buy or not.
Added Reward- On the flip side, there is a huge benefit to
home ownership if done in the correct way. If you purchase a home with “good
bones” and are financially stable, it can be one of your best investments. Real
estate is a great way to make some good money in equity as well as putting your
would-be rent money towards your own asset. Be sure to find a good realtor and
do a lot of research to make sure you are purchasing the right home at the
right time.
Renting
Lower Risk-Having been a renter for almost ten years before
buying a home I can say that it comes with a lot of benefits. It is a relief to
call your landlord when the back door breaks or the dishwasher starts to leak.
It is convenient having someone else take care of all the problems and expenses
associated with a home. Just be sure that if you are going to rent that you
have checked into the landlord to be sure they are reliable and easy to reach
(talk to prior renters, neighbors, and ask the landlord “what if” questions).
Lower Reward-Renting can feel like money wasted at times.
The perpetual sending of a quarter of your paycheck to someone else to have a
place to call home is difficult when you end up empty handed at the end of it
all. This is the price you pay to not
have to be financially tied to a city, house, and mortgage.
Overall, there are positives to both renting an buying. I think
owning real estate is a great investment and something we should all look into
at some point. There can be a huge return on your money with real estate if you
make a good purchase, keep your property well maintained and use a good realtor
to sell when the time comes. On the other hand, there is nothing wrong with
being a perpetual renter. You can move when you feel like it, you can call
your landlord when you have problems, and you can invest the extra money into
your retirement for later. Either way I just want to yell out that, “YOU DON’T HAVE
TO BUY A HOUSE JUST BECAUSE”. There is no right stage or age to purchase a
home, whether you are single, newlywed, or retired please, please, please,
consider your financial situation, get a good realtor with a great track
record, and buy when it is the right time for you.
Dave Ramsey’s recommendations on home buying:
1)
Have a fully funded Emergency Fund (3-6 months
of expenses)
2)
Save a 20% or more for a down payment
3)
Get a 15 year fixed rate mortgage with a payment
that is no more than 25% of your take home pay
4)
Visit daveramsey.com to find an Endorsed Local
Provider (ELP) under real estate
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