Do you wonder whether you should rent or own your own home? Some people, like first-time homebuyers, are eager to own while many boomers nearing retirement are considering downsizing. It’s wise to consider many factors before deciding to rent or own.
People in their 20s and 30s may be thinking they should, “Stop throwing money away on rent” and become homeowners. While home ownership offers the potential to build equity and the property may appreciate in value, not everyone is ready to be a home owner. People with large student loan payments, credit card debt and low levels of savings may not be in a good position to buy. Renting a low-cost place would allow them to build up savings, pay down debt and get in a stronger financial position.
Before putting down roots, consider how committed you are to living in this area. Are you planning to stay here because you like the community, schools, or living near friends or family? How stable is your job? If there’s a good chance you’ll be living in a distant community within three to five years, you may want to keep renting, so you can move without having to sell a home.
Before you buy, add up the principal, interest, taxes and insurance that you’d pay as a homeowner. Plus factor in higher utility costs, home maintenance and improvements. Can you really afford that house or condo and still have money for the entertainment, recreation and other things you value? If you’re not sure, consider trying on the payment before you buy. For example, if your rent is $550 per month and your payment would be about $900, practice paying $900 for at least four months. Pay your rent and put the extra $350 in a savings account to help you pay for the costs of maintenance and home improvements.
While interest payments and property taxes are potentially deductible, about two-thirds of taxpayers don’t have enough deductions to itemize so they take the standard deduction. So don’t assume you’ll save on taxes, check this before you buy.
Many boomers, who have enjoyed their yards for years, are now thinking how nice it would be to spend less time, money and energy doing yard work, repairs and home improvements. Skipping shoveling and mowing sounds nice, but if you love the privacy, neighbors or setting you’re living in, would you find something else that you’d enjoy as much?
Before buying or downsizing, take time to think through the numbers and your priorities. How do you want to use your free time or weekends? Are you ready for the costs and responsibilities of home ownership or do you want to use your time, money and energy in different ways?