According to the U.S. Census Bureau, the country’s homeownership rate fell to 62.9% in the second quarter of this year, matching an all-time low reached in 1965. What should be considered when deciding to buy a home or rent? Many people, especially millennials, are too overwhelmed by student loan debt to be homeowners. High rental costs coupled with student loan payments can make it challenging to save up for a down payment for a house. Since buying a home is often the largest investment many people will ever make, it’s important to give the dilemma whether to rent or buy a home some serious thought.
Your monthly mortgage payment is just the start of what you would have to pay as a homeowner. Right up front, you’ll need enough money to cover a down payment, which could range from 3% of the purchase price to 20% or higher. However, if you put down less than 20%, you will likely be required to obtain private mortgage insurance (PMI), which acts to protect the lender if you can’t pay your mortgage. You’ll also have closing costs, such as appraisal fees and lender origination fees, which can add up to 2 – 5 percent of your purchase price. Another consideration is your ongoing payments. There will be recurring bills which include homeowners insurance, real estate taxes, homeowner association fees and home maintenance. The Consumer Financial Protection Bureau has a monthly payment worksheet that can help you assess whether your finances are in good enough shape to shoulder the ongoing costs of home ownership.
Do you plan to live in the house for the long term?
As a general rule, it does not make sense to buy a home unless you expect to live there for a long while. “Our rule of thumb is five years or longer,” said Becky House, education and communications director at American Financial Solutions, a non-profit credit counseling agency. The goal is to give your property enough time to appreciate in value to compensate for the costs you’ve incurred as a homeowner. It’s important to note that five years is just a rough rule, and there is no guarantee that your home will appreciate in value. Some homeowners who bought at the peak of the market a decade ago are just now seeing their home’s value recover. Real estate appreciation matters because it can make the difference between whether it’s better to buy a home or continue renting. A $235k home becomes worth $485k at 3% appreciation after 30 yrs, but it becomes worth $649k at 4% appreciation. One percentage point makes a tremendous difference!
Are you ready to take on the responsibilities of home ownership?
It’s easy to catch the homeowner fever and to forget about all of the work involved. When something breaks or needs repair, you either have to fix it yourself or hire someone else to do it for you. When you are a renter and you have something that needs to be fixed, you call the landlord. When you are the homeowner, you say to yourself, what is this going to cost to repair? If you grow weary of home ownership, you can’t necessarily count on making a quick sale. All those advantages of home ownership can easily disappear if you’re stuck with a home you don’t want.
We are committed to making your rental experience the best it can be. If you would like further information, you can contact me at Emily@CentreRealtyGroup.com or 617-233-5043 Are there other Boston area real estate topics you would like me blog about? Please let me know.
Emily K. Beal Director, Business Development and Customer Experience