Far and wide, the most common statement I hear from young adults or those considering purchasing a first home is “I can’t afford a house”, at which point I have stop myself from going on a rant. This is one of my favorite topics to discuss as I’m able to put both personal and professional experience into it.
When I graduated high school, I didn’t fully understand the financial impacts of renting or owning. However, I saw rent as a monthly cost that is essentially being thrown out the window, and that was enough to lead me to do some research on buying a house.
Shortly after, I purchased a home for roughly $90,000. I was able to receive $8,000 in government grant money, and while I can’t I can’t remember if, or what, I had to pay for a downpayment, I know that my mortgage was roughly $800/month (interest rates were higher then than they are now). Even if I had chose to rent and the monthly payment was the same, or even less (which I am certain it wouldn’t have been), I would have lost out on the equity that I now have in that home.
Almost 10 years later and that home is the biggest financial asset that I have.
In 42 U.S. states it is actually cheaper to pay a monthly mortgage than it is to pay rent. With Illinois ranking in the top 10 states with the BIGGEST savingings, averaging an estimated monthly savings of over $500.
But is it still cheaper to own if you aren’t sure how long you will stay there?
This depends on what you choose to do with your property. It is assumed that seven years is about the length of time you need to be in a home to reap the benefits of appreciation and equity. When talking with sellers who haven’t owned their home long, and who would potentially have to pay money to sell their home, I explain that the loss isn’t necessarily due to home depreciation. It’s that the costs of selling (commissions, closing costs, repairs, etc.), outweigh the amount of equity they have accumulated in those short amount of years.
How can you have the best of both worlds?
If you do plan to stay long term in the home you’re buying (or at least seven-ish years), great! Spend a little extra if you find the perfect home, or spend less and do some of the renovations you really want to do.
If you’re not sure and think you might only be there a one to three years, spend a little less. Don’t be as concerned with getting everything on your “wish list”. Buy a practical home, under your budget, and in two years when you decide to move, rent it out! Skip the cost of selling, and keep gaining equity. We won’t talk about how backwards this option is due to the content of this post…but wouldn’t you rather be the one cashing the rent check rather than writing it?
At the end of the day, there are tons of options for buying a home, and a wide array of opportunities that can come from it. Take some time to get educated on the pro’s and con’s of renting & owning, and see what’s best for situation.