Vacancy.com - Apartment search, find a rental, apartments for rent, apartments, apartment finder, apartment rentals, search for apartments

Should I buy or rent? You’ve heard this debate before. You’ve probably done a little research on the subject as well. More than anything, you’ve probably been told by everyone you know exactly what you should do and why. Today’s goal with this article is to create an all-in-one informative mass of awesomeness you can fully indulge in so that you’ll never have to look up another article ever again.

Naturally, when you announce that you are interested in looking into buying a home, suddenly everyone becomes an expert on the matter. You’ll never be in short supply of people telling you what they think you should do. Some of these common phrases are shown here in our post. But don’t you worry, we’re going to go over each of these, and question their logic all along the way.

This argument is probably the most common. The idea is, if you can afford to pay for a mortgage, why wouldn’t you put your money into your own house instead of paying off some landlord every month?

The American Dream has always held the same essentials. One of the major elements to that Dream is owning one’s own home, which signifies independence, stability, and success.

Isn’t that fancy? Did you ever think of the idea that you might never have to make a new budget plan for a mortgage, because it would be the same as what you pay for rent?

Chances are, you are hearing quite a bit about this from your friends and family. But what are the experts saying?

From DaveRamsey.com:

“Even though the payment is the same when you rent or buy, owning a house is more expensive than not owning a house. However, it’s still a good investment because it does go up in value. I wouldn’t buy until you get through Baby Step 3, where you have no debt and a fully funded emergency fund.”

“You’re always better off to buy a home if it’s a reasonable expense in your budget and if you’re going to own it for at least five years.  If you’re going to buy a home, you need to pay 100% cash or put 20% down and get a 15-year fixed rate mortgage.  Your monthly payments should also be no more than 1/4 of your take home pay.”

“I also recommend that young couples who are just getting married not buy a home in the first year. It takes a year of being married to know how close to your mother-in-law to buy. You’ve got to get to know each other well enough to buy a house together, and you don’t in your first year of marriage. Be married a year, rent something cheap, pile up cash, clean up your mess.”

“If you’re not going to be in a city for very long, renting is a better idea than buying, because you can get stuck in a house and end up losing money.”

Dave Ramsey is a long-time respected expert of all-things-financial. It might be wise to bookmark his site. There is a vast amount of information available to everyone that needs help planning and managing their finances.

And here’s more information, broken down simply, from About.com:

Up until now, we’ve read common quotes from well-meaning friends and family, financial expert Dave Ramsey, and an experienced contributor at About.com, all of whom are ready and willing to spew their profound intelligence your direction. Which one is right? Are there some absolutes here, or is it all relative to one’s particular circumstances? Where can we find a balance?

So far we’ve been able to identify that there isn’t a simple ‘yes’ or ‘no’ answer to the question of whether to buy or rent. While ultimately there is a clear answer, it only comes after much research and serious investment to comprehend your situation, your market, and your financial habits.

In doing some research for this, I found some intriguing videos on the topic. They are worth your time to watch. While you may not agree with all they are saying, they still provide quite a bit of solid and well-rounded information.

To get a more interactive look at your situation, take a look at this buy vs rent calculator from the New York Times. You can input all of the information you need there to get a better feel for your specific situation. Here’s another calculator from Ginnie Mae.

Another important element to this process is current housing markets. What does the current market look like? How does it look in comparison to years past?

The chart above shows the paths of the averages of three mortgage options over the course of ten years. Rates are lower now than they’ve been in years. There was a strong dip over 2003-2004, but the 30 and 15 year fixed mortgages are substantially lower compared to then. So what does this mean? Low rates makes it a good time to purchase a home, but a home should not be purchased based solely on that factor.

Are you concerned about “throwing away” your money for rent? Consider this:

You do not really own your home  until your mortgage is paid off. Until then, your home is really owned by a bank, who you will continue to “rent” from for a 15 or 30-year period. If you are not prepared to be a homeowner, you could wind up foreclosing on your home and losing all of the savings you put into the home to begin with. There’s one reason that renting might be a better solution, especially if it’s short term.

Dave Ramsey and other experts suggest you live in a home for a few years at least before you sell. If you have plans to move around every year or two (especially applicable to college students), then buying a home may not be the right solution, even if you do have the money. You’ll want to consider paying a minimal rent and saving as much as possible so that you can afford a full down payment and all of the extra costs attached to buying a home. What extra costs? Well, after closing costs and the move in, you’ll always find something that needs repairs. With a rental situation, these repairs are covered in the rent you pay and somebody else takes responsibility for them.

Let’s create an example.

Let’s say my wife and I are looking to purchase a home. We have been living in a small basement apartment for several months and have recently had our interest in the real estate market sparked by a relative. We look at our current rent payment and, when comparing it to some online mortgage calculations, we realize we can live in a decent home for the same monthly mortgage payment as our rent. This is an eye-opener. We go bananas trying to find our perfect little home with the white picket fence.

For simplicity’s sake, let’s say we qualify for a $100,000 mortgage, which isn’t bad in our market. We can still find a nice little place. Our mortgage payments pan out to be around $800/month, which is completely reasonable. We’re even more excited about this as we find several little homes nearby that would be perfect for us. This couldn’t get any better.

And it doesn’t.

Soon enough, we realize that we are in too far over our heads. But we justify. HOA (Home Owners Association) fees are $120, but that’s okay, when we’re already paying $800, another $120 is nothing. Then come closing costs. $3,000. We won’t have to pay all of it, but we’re still negotiating with the seller.

We didn’t have a 10% down payment put aside (or $10,000), so we apply for some government assistance programs designed for first-time home-buyers. We’ve put all of our eggs in this basket.

Insurance. We’re going to need insurance. It won’t be that bad. We can figure it out later. Maybe after the sale goes through.

We’re completely submerged before we realize that final costs and consistent payments are going to take most of our money, without including the necessities of living: auto repair and maintenance, food, and utilities.

Suddenly, an $800 monthly payment turns into $1300 and we have no idea where that’s going to come from. $800 was our limit, and we barely made it.

Then, just to solidify our fate, the government program rep just called. Our debt-to-income ratio is too high to qualify for assistance.

Debt-to-Income Ratio: The amount of money you owe lined up against the amount of money you earn. If you can’t show that you’ll have the extra income to make the payments every month, you are toast.

ABSOLUTES (some, not all):

DO NOT buy a home if you do not have a substantial savings (the exact amount will depend on the price of the home you want to purchase). Enough for down payment and 5% of mortgage value for a rainy-day fund.

DO NOT buy a home if you do not have a current and working knowledge of the housing market. Don’t pretend like you know a term or a process. It will end up costing you money.

DO NOT buy a home if your FICO score is 620 or lower. Your loan (if someone gives you one) will be very bad.

DO NOT buy a home just to fulfill the “American Dream.” Many have gone to drastic lengths to get a home as part of their dream, but it quickly becomes a nightmare when they aren’t well-educated or well-prepared.

DO NOT buy a home if you plan on moving soon. Most experts agree that you should plan on staying in your home for 5-6 years to make it worth the money you put into it.

DO NOT buy a home without calculating all of the costs, not just the mortgage.

DO NOT rush into purchasing a home, no matter how genuine and enthusiastic your Realtor may be.

While we might appear biased in our given information so far, you should know that we are not against people living their dreams and buying their own home. That would be down right Grinch-y of us. We are, however, strongly opposed to getting into a home unprepared and unaware of the stakes. There have been many bad decisions made that have lead to the dire financial straights our country has been in. Our goal is to keep that from happening ever again. Here are some suggestions:

Rent a modest apartment until you have saved enough to put 20% down on a 15-year fixed mortgage.

Have an extra rainy-day fund set up. Ideally, 5% of your total mortgage.

Plan for the future. You may be more than anxious to get into your own home, and having a real plan for your future will help ease your pain. Your dream home will be on a path that you have created. Don’t jump the gun, though,,or you’ll regret it.

Stay on top of the market. It’s never an off season to look for your dream home. By browsing when you’re not necessarily ready to move, you will get a much better idea of what you want. Be careful, though. You might find that “deal” that you just “can’t afford to pass up!” It’s not true. You can afford to pass it up. You will find another home suited for you when you are suited for it. Just keep yourself familiar with your market.

Be modest. Don’t get the highest mortgage loan you qualify for. That means you’ll literally be living on the fringes of your income. If you qualify for $250,000, look for a home around $220-$225. Give up $20-30 thousand of property value for 15 years (and more) of living comfortably within your means. You’ll be grateful to not have a week-to-week stress of wondering how the bills are going to get paid. That extra money can be saved up for a newer, nicer home 6 or 7 years from now.

Take your time. Everyone who tells you to rush into things before rates go back up is working from their own angle. It is true that rates are low and there is potential for great mortgage rates for qualified buyers, but don’t feel rushed into doing something you aren’t prepared for.

Tags: buy or rent a house, buy rent, buy vs lease analysis, buy vs rent, buy vs rent calculator, buy vs rent home, buying versus renting, buying vs renting a home, buying vs renting a house, buying vs renting calculator, home buying vs renting, leasing versus buying, rent or buy a home, rent vs buying, rent vs own calculator, should i buy or rent