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More Millennials are moving into the real estate market. About 65 percent of people ages 25 to 34 years old surveyed by Realtor.com said they plan to buy in the next three months.
You have limited funds. If you don’t have the money for a down payment and additional costs of owning a home, renting is the best option.
You are uncertain about your employment. If you are unsure about your job situation or living paycheck to paycheck, focus on conserving cash for future living expenses and building up your emergency fund.
You have a short-term time horizon. If you are on a work assignment that lasts two years or less, it makes more sense to rent rather than taking on the high transaction costs of purchasing a home. Same goes if you plan to move in the next couple of years or want to start a family in a few years. On a similar note, if you are going through a significant life transition, like divorce or loss of a spouse, renting is a better idea while you get a little better footing.
You can cover the additional costs of owning. Make sure you can pay the down payment and closing costs before buying a home. Most banks still want a 20% down payment. So if you are purchasing a $250,000 home, a 20% down payment would be $50,000. That’s in addition to a typical 5-6% in commissions plus another 1% in closing costs. Maintenance costs are also a big factor to budget for.
You plan to stay in the home at least five years. It’s best to buy when you have the “long-term horizon.” Staying in a house that you buy for five years or more means you are more likely to recoup what you paid in transaction costs and generate a return on your investment.
You want to reap the financial benefits of homeownership. Low interest rates make homeownership attractive because it decreases the amount borrowers pay on their loans. Mortgage rates remain near record lows after the 2008 financial crisis. If you itemize your federal return and don’t qualify for the alternative minimum tax, you can deduct your mortgage interest and property taxes from your tax obligations. And most importantly, you can build equity in your home, something that isn’t possible with a rent payment.
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Real Estate Agent
Simi Valley | California
159 Parrot Lane,
Simi Valley, CA, 93065
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