Deciding to buy a home can change your life. Home ownership isn’t for everyone, particularly when the real estate bubble is still fresh in peoples’ memory. Thousands of our neighbors are still trapped in homes worth less than they paid for them, a situation called being “upside down” or “underwater”. Very few of us would volunteer to pay more than something is worth, so the dream of home ownership has turned into a nightmare for many people. That’s a lingering lesson of the last few years. A house is not necessarily a great investment.
So who should buy a house? There are rent vs. buy calculators available online. They can run you through the mathematical exercise of seeing if you can afford a house, but they don’t replace an in -person discussion about the pros and cons of home ownership. Here’s a few of the key factors to think about.
Mobile people should rent. I’m comfortable laying that out as a fact of life. If you have expectations of moving for a job, for romance, for school, or just because you miss your old buddies, you probably should be a renter, at least for now. Even if we weren’t in a post-bubble world, the costs to purchase, maintain, and then sell a house over a short time frame don’t make sense. If your time horizon in one spot isn’t at least five years, just rent.
Struggling families should rent. I don’t mean that you can’t buy a home if you have a baby or two laying around the house, but raising kids is time intensive, money intensive, and a great deal of fun. If you’re worrying about coming up with the property tax semi-annual payment or patching a leaking roof or remodeling a kitchen, you’re not bouncing your kid on your knee or reading bedtime stories. In addition, almost all families today rely on two incomes to maintain a standard of living they imagine they need. If a child gets sick or requires a parent to stay at home, the mortgage on a home might turn into a cruel burden with only one person to carry it. If you have ample savings and can afford a big down payment and low monthly payments, by all means consider buying, but don’t try to bite off more house than you could afford on one income.
I could list some more groups that I lump into the “rent, not buy” category, but the mobile and struggling family groups account for the lion’s share of people struggling with the issue. I would have different advice for aging boomers, both married and single, but I’ll save that for another post. In the meantime, the question of rent vs. buy is a lot easier today than it was five years ago. Then, if you didn’t jump into the market and grab a house, you were an idiot. We all know how well that worked out. If you have any doubt about whether to rent or buy, just rent and start saving in case you do decide to buy later. It’s always a good time to start saving money.