But times have changed.
The changes in the world around you may mean changes in the way you look at your lifestyle and financial strategy. So, before you seek out a real estate agent, ask yourself a few questions.
- Where do you see yourself in the next five years? While it is difficult, if not impossible, to predict the future, we do still make plans for our lives. If you see yourself living in the same city or town for the foreseeable future, then buying might make sense. If, however, your type of work might require you to relocate, then renting may be the better call. You have greater flexibility as a renter than as a homeowner if it comes to trying to sell a home, especially if you are living in a market where homes are slow to move.
- Have you thought about all the real costs of homeownership? A lot of people will point out the tax advantages and the “investment” aspects of owning a home. But there are also additional costs that can make homeownership more expensive than simply the monthly mortgage payment. For example, lenders require homeowner’s insurance. A benchmark for computing the premium is to divide your home’s value by 1,000 and then multiply that by $3.50. On a $200,000 home, the homeowner’s insurance would cost roughly $700 per year; the average cost of renter’s insurance in the U.S. is $187 per year. Then, there are the repairs and the yard work and, finally, property taxes.
- Are you actually “throwing money away” by renting? Building home equity isn’t the only way to grow your financial assets. According to a 2017 Nerdwallet cost analysis, on a month-to-month basis, owning a home is still more expensive than renting in all 50 states, which could affect your ability to put money aside in savings for emergencies or retirement. When you add up the actual costs of owning a home vs. the possible tax advantages, you may find that your yearly costs outweigh any tax savings.
- Where are you looking to buy a home? Some markets are “hot” right now. There is limited inventory and high demand, which is pushing up prices. And the numbers aren’t adding up in favor of those trying to buy at the entry level. According to Zillow, the median value of a U.S. home is $200,000. However, in June 2017, the median home sold for $263,800. This means starter-home buyers are using more of their income — and possibly more of their savings as well — to pay for housing. In addition, many homeowners at the bottom third of the market (based on home value) are in a negative equity position, making it almost impossible to sell and keeping affordable home listings harder to find.
- Will you be happier buying than renting? According to a report from Trulia, 44% of American homeowners have buyer’s remorse over their home purchase. The number one regret was the size of the home. Nearly half wished they had purchased a larger home. However, because housing has gotten more expensive, people are finding that they have to settle for smaller homes to afford buying at all. And the home buying process itself is stressful. A number of homebuyers regretted not getting enough information about the neighborhood or the home itself before buying. Not surprisingly, parents of school-age children tended to have more regrets about their neighborhood choice.
In the long run, owning a home can be a valuable asset. But that doesn’t mean it is right for you at this time.
The most important step is to consult with a professional financial advisor. You want to make the best choice for your situation and plans.
And while owning a home may be part of what you consider your legacy, there are many aspects to a legacy. At LegacyShield, we believe making smart financial decisions is also an important part of any legacy plan, and that includes whether it is best for you to buy or rent.