One of the most adult-level feelings you get is buying a house. Whether it’s your first or fifth, there’s something grownup about it. It’s been the dream of all Americans, to own a home.
Renting used to be significantly less expensive than buying, when it came to homes and apartments. However, as of 2020, the two options are virtually even in monthly expenses.
That said, it’s not a cut-and-dry debate like it might have been 50 years ago. And although many younger adults would like you to believe you need to be a doctor or tech mogul in order to buy a home today, that’s not true. But taking time to reflect on pre-purchase considerations matter more today than ever. Let’s look at some key considerations around the topic.
Current Financial Status
The conventional logic today is that you should wait until you have 20% for the down payment. One reason is that if you have to sell faster than you’d like, you’ve got equity you will retain on an appreciating property. Putting less down means more debt which means you could be in trouble if the property doesn’t appreciate as you expected.
Not only is a significant down payment important, but you should have a substantial amount in savings, especially for emergencies. If the pandemic taught us anything, it’s to be more financially prepared for the unexpected.
Your mortgage payment shouldn’t exceed 30%. Lenders look at your debt-to-income ratio and if your mortgage payment will push you much higher than that, they may not consider your loan. So when looking at buying, look for homes that keep you under that percentage. If you’re not happy with homes in that sort of range, stick to renting.
Your Future Matters
How long will you be in the house? If you aren’t planning on staying for at least 5 years, then buying is a serious risk, especially if you’re stretching your debt to income ratio past 30%. Properties need time to grow in value, and you’ll see little growth in the first few years.
Plus, renting offers you built-in exit strategies if you need more flexibility. You won’t lose money by renting for a few years, but you could very well lose money and lots of it if you buy and sell too fast.
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But What About The Long-Term Investment?
One of the biggest arguments for buying over renting is the potential for your property to become a boon eventually for you. This isn’t entirely accurate, given recent studies.
Robert Shiller, a Nobel Prize-winning economic guru, says that between 1890-1990, the return on home investments overall was at 0%. Shocking, to say the least. The S&P had little better news when they said the last century has shown a return of nearly 10%. This is a far cry from the gold-rush mentality property investment stories you might have heard over the years.
Florida Atlantic University has researched home investing and concluded that renting is often the better choice if you’re unable to float a significant down payment. They surmise that you’d be able to save for a down payment and maybe even invest the cash you’d normally put into home costs. Over time, you’d yield enough money to make a down payment and then some.
Other Considerations
Where you buy your house plays a lot into things. If you’re buying into an area that has the potential to be a boom rather than bust, then you might roll the dice with less-than-optimal financial markers and hope to get lucky. However, you would need to consult a real estate expert (similar to Amber Lee) who is familiar with the local real estate predictions in order to determine whether the area where you are considering relocating has the potential to become a boom. Know that this is something you might not figure out all by yourself! Hence, do not hesitate to seek assistance. Anyway, once you are certain about this, do make the investment.
This would prove to be profitable in the future. So, if you’re in line for a promotion and are counting on significant extra income in the near future, or perhaps you’re about to get married and become a two-income family (making a bigger mortgage payment more feasible), then do take the leap and invest in such areas. If you have managed to save a huge amount of money, then you could consider buying a property abroad. But you would have to be quick as they tend to get sold off pretty quickly. If you are not able to visit the place because of your busy schedule, then you can consider looking at real estate websites to make this process easier for you. For example, if you wish to buy a villa in Abu Dhabi, then you could consider visiting real estate pages such as Zoom Property (www.zoomproperty.com/en/buy/abu-dhabi/villas-for-sale) to help you make a wise decision when it comes to buying a place.
However, remember that there are many worthy aspects of this topic that need to be considered before your name goes on any official purchase documentation. Take the time you need to make the best decision and lean towards being cautious and shrewd, leaving room for emergencies and the unpredictabilities of life. That way, no matter what, you’ll be financially secure.
