From the time we leave the family nest to live on our own, we are faced with this dilemma: Should I buy or rent my home?
Opinions abound, and even financial experts differ on the matter. The
truth is there is simply no “yes” or “no” answer that covers every
person. Add the fact that buying a home is one of the most emotional
decisions we will ever make, and the decision become even less clear.
Sometimes, renting makes the most sense.
Many have studied the subject and advised a number of financial-planning
clients in navigating this decision. What has been found is that the
key issues can be addressed by answering two broad but critical
- What is your financial picture telling you? (Do the numbers make sense?)
- What decision feels right for you at this time? (Which option will better support your life goals?)
To determine those answers, here are matters you should consider:
- Debt-to-income ratio: Once you add all your debt payments, does
your income allow you to afford buying a home and the ongoing payments
needed? An important guideline is that your total debt payments should
not exceed 40 percent of your income and all housing-related payments
should be less than 30 percent of your income. These ratios determine
how much house you can afford.
If you were to buy a home, would you exceed these ratios? If so,
renting may still be appropriate for you until you have paid off debt or
your income increases. You can still qualify for a mortgage if you are
near or in retirement; however, expect to work closely with your
mortgage company to find the right timing and strategy to avoid having
so much wealth tied up in your home that you’re strapped for living
- Down payment and emergency funds: Your emergency fund and down
payment fund need to be separate pools of money; if you plan to buy a
home, you should have both.
For your emergency fund, you need to have money to cover three to six
months of expenses. One big reason to have this cushion is because now
you will be responsible for any home repair or improvement costs.
Another consideration: Although you can probably qualify for a mortgage
with just 5 percent down payment, making a 20 percent down payment can
save you from paying private mortgage insurance (PMI) costs and will
diminish your mortgage rate. On a $300,000 home, with a 30-year mortgage
at a 4.25 percent fixed rate, the larger down payment of $60,000
(versus $15,000) brings a savings of $54,117 in mortgage insurance and
interest over the lifetime of the loan.
- Credit Score: Do you have a credit score higher than 700? You
can probably qualify for a loan if your credit is below 700, but the
higher your credit the more likely lenders will want to give you a loan
at lower rates, and the most favorable rates go to those with a credit
score of 750 and above.
Now that you have some good financial guidelines to help you answer
whether the numbers make sense, let’s look at the personal and emotional
issues that can guide you to the right decision:
- Five-year view: Where do you see yourself in three to five
years? Generally, you should plan to stay in a home for at least four to
five years in order to offset the purchasing costs. If you have major
life transitions unfolding, it may be wise to wait until the dust
settles and rent in the interim. How about your family goals?
Do you have a financially secure job in the area of town you love?
Remaining mobile and flexible to relocate could open doors to rewarding
- Other goals: How will your home purchase affect
your pursuit of your other financial goals? If your primary goal is to
travel the world before you settle down, you may want to rent for now.
- Lifestyle: Is your lifestyle better suited to renting or owning?
While home ownership is part of the “American Dream,” does the
reality reflect how you want to live? Do you enjoy being the “super” of
the home, ready to fix, maintain, and pay for maintenance and repairs?
Do the envisioned rewards of homeownership overpower the headaches of
If you’re nearing retirement — or already there — will owning your home
be a source of comfort, or will it present more hassles and expense than
you want to deal with? Depending on the monthly costs of maintenance
versus the cost of renting, leasing an apartment or accessible townhome
may be a better choice. Here again, emotional considerations can be key.
It takes courage to challenge the mainstream beliefs of homeownership,
but if buying your home doesn’t bring you joy every day you live in it,
maybe you should reconsider those plans.
Buying a home is as much an emotional decision as it is a financial one.
Evaluate your full financial picture or work with a Certified Financial
Planner professional to help you navigate your own numbers to determine
what makes sense to you. Do this before you begin exploring homes for
sale. Otherwise, you may find yourself in love with a home you can’t
For more information on apartments in Garner, NC contact Abberly Place.