The challenge is that there is much more that goes into the decision to rent or buy than a simple calculator can tell you. I can no more tell you if you should buy a house than that calculator does. The choice needs to reflect YOUR particular life choices, financial plan, and best interests. My wife and I own our house, but that does not mean it is the right decision for you. Remember, other people do not get a vote in how you live your life, including where you live.
To help you make a better-informed decision, here are 5 questions to ask yourself before buying a house:
- Are you settled in your career, and does it require you to stay where you are? – By nature, Childfree people are more mobile. If you do not think you will be in the same job in 3-5 years, it might be better to rent. Also, if your job allows you to work from home, effectively, you can work from anywhere. Who knows, you might even end up adopting a digital nomad lifestyle.
- Do you have a family, friend, or social reason to stay where you are? –If you are staying to take care of family (such as an elderly parent), then how does that change which house you buy for the future? For those who do not have strong local connections, why do you want to stay where you are?
- Why do YOU want to own a house? The key here is to identify what are your reasons versus those of others. Just because home ownership helped your family or friends does not mean you have to do the same. And if you want a house for the space, yard, or the like, remember, you can also rent a house.
- Do you enjoy home maintenance? Owning a home is a lot of work. While I love our 33 acres (with a pond), it is not fun to take care of in the summer heat. The work is never-ending, and you need to plan on 1% of the home’s value each year in maintenance. The difficult part is that home maintenance expenses tend to be ‘lumpy’ with years of big expenses (such as HVAC, roof, etc.) and other years with very little costs.
- Are you out of debt, have an emergency fund, and a down payment? It may be extreme, but in order to ensure you don’t become ‘house poor,’ you should buy a house after you are out of debt, have 3-6 months’ expenses in an emergency fund, and 20% down. You can get a mortgage with less down and with debt, but you may quickly find yourself in trouble if anything goes wrong.
I can’t tell you if you should or shouldn’t buy a house but remember renting serves a purpose. Renting is a better option when you are more mobile and not tied down for one reason or another. Renting is not ‘throwing money away.’ While there may be some value to owning real estate, it is not guaranteed, and the flexibility that you get from renting may far outweigh the gains. If you want exposure to real estate in your financial plan, there are other options than just buying your own home.