We’ve all probably faced this question at some point or another. What makes more sense? Renting an apartment or buying a house? Unfortunately, there isn’t a one size fits all answer. The following are some questions you can ask yourself to try to determine whether or not you are ready to jump into homeownership or if you should spend another year or two renting.
Can I afford a house?
This would seem like the obvious first question to ask yourself. What can I afford? There are many different opinions out there on what people should spend on their house payment. The general rule of thumb I’ve always followed is that your house payment (principal + interest + taxes + insurance) shouldn’t equal more than 25% of your take home pay. To keep things simple, let’s say your household take home pay is $4,000 per month. It doesn’t take a genius to figure out that 25% of $4,000 is $1,000. Any housing payment over $1,000 is going to begin to leave you without money to do other things. It’s great if you have a nice house, but if you don’t have any money leftover after paying the mortgage, then you become ‘house poor.’ If you can’t find a house you like that fits in this 25% rule, then maybe you can’t afford to buy right now. There’s certainly no shame in renting while you work on increasing your household income. Another thing you want to make sure to do is to always put money down when purchasing a house. Buying a house with $0 down is a horrible idea. If you can’t afford 10% down (20% is ideal to avoid mortgage insurance) then you probably aren’t in the proper financial position to buy. My advice would be to keep renting while you build up cash to put towards a down payment in the future.
How long do I plan on staying?
Longevity is important. Usually, if you plan on staying in a location for 3 years or longer, then it’s safe to purchase a home. The equity you build in the house over those 3+ years will usually exceed the hard costs you incurred at closing. If you bought a new house every year you wouldn’t ever build any equity which is the ultimate goal of owning a home of course! When I was 20, I bought a starter home close to the University of Minnesota-Duluth where I went to college. I knew that I would be living there for at least the next 3 or 4 years so I felt confident that I would be able to build up enough equity over that time to make it financially worth it. When I turned 25, I moved to Minneapolis for work and I ended up selling my house to my younger brother for a hefty profit (after the family discount of course). When I moved to Minneapolis in 2014, I decided to rent and have been ever since. I did this because I’m not sure where my work will take me over the next few years. In the meantime, I’m saving for a down payment and accomplishing other financial goals at the same time.
Am I prepared for extra work?
Owning a house takes a lot of work. I know from experience. Just the cleaning and upkeep alone is a lot of work. Remember growing up how you usually only had to clean your bedroom? Well, when you own a house, you’re responsible for every square foot. You’d be surprised at how much dust will accumulate on everything. Along with cleaning comes the maintenance and renovations. Maintenance can range from changing air filters and lightbulbs to touching up chipped paint and light landscaping. The maintenance never stops. Trust me. Along with maintenance, renovations are also essential for increasing the value of your home over time. A well budgeted kitchen or bathroom upgrade can add tens of thousands of dollars to the price when it comes time to sell. When you own a house, you’re responsible for the cleaning, maintenance and renovations. When you live in an apartment, you’re responsible for only the cleaning. Can you see why owning a house is more work? After living in an apartment for the last 2 years, I can attest to the fact that living in an apartment is very little work other than light cleaning. However, I look forward to the day when I own my own house again. I’m ok with the extra work. Are you?
I hope these questions will help you when you are deciding whether to rent or own. This article just skims the surface of all the information out there. There’s countless articles and websites dedicated to making this decision. If you have other questions or tips and suggestions for fellow readers please feel free to leave a comment below! Positive feedback or constructive criticism is always welcome! Thanks for reading!
Whether you want to rent or you opt to buy a house, everything must be considered very well. You have to list your considerations and your preferences in getting a home. In that way, you will never go wrong with your choices.