With school finally over and a steady income coming in, it's tempting to put that money toward a house. However, buying a home isn't necessarily the best choice for all people. Unless you have a hefty down payment already saved up, and you plan to be in the same house for a while, renting may still be the better option.
Many think you're not building equity when you don't own a home.
But equity isn't everything. The cost of renting is more predictable. You're not on the hook for unexpected repairs, and you also don't have to dedicate as much time, or money, to such tasks as maintaining a lawn. In the meantime, you can be socking money away for a down payment on your dream home when the time is right.
How Long Will You Live in the House?
Experts agreed that if you'll stay in the same location for a very short time, renting makes more sense. Many feel that 5 years is a minimum to consider buying a house.
The length of time matters, in part, because buying or selling a home can be expensive. If you buy a home every few years, you'll incur those extra costs every time. A person should budget 10%-15% of the price of the house for closing costs and real estate commissions, plus miscellaneous expenses, such as buying new furnishings.
Staying in the house for a longer time also protects you somewhat from a potential downturn in the real estate market, during which the value of your house might be less than what you owe when you try to sell it.
Even if you know that you'll live in the area for many years, that's not the same thing as staying in the same house. "A lot of people, when they get a bump in salary, want a nicer house than what they could afford at first.
How Much Money Have You Saved?
People should wait to buy a house until they have a 20% down payment. With that amount, you won't be required to pay private mortgage insurance, which adds to the cost of your mortgage payment. Another advantage is that when you sell the house later on, the money that went toward the down payment can help you cover closing costs and any unexpected expenses associated with the sale.
How Much Debt Can You Afford to Take On?
Student loan debt is often the reason why it's hard to save up much of a down payment. If your student loans are at a high interest rate, it makes more sense to put money into loan payments while renting than to prioritize saving for a house.
When you are ready to buy banks will let you borrow more than you probably should. A loan should be no more than two to three times your annual income.
Ultimately, the best decision is an informed one that takes into consideration the multitude of factors unique to each person. By considering the issues discussed above, you can make the choice that's best for your situation.