Some people say renting is just throwing money away, but that’s not always the case. Sometimes renting is financially better.
“This old adage is definitely for a time gone by when people stayed in one place longer and didn’t have to expect to move for a job or family. That said, having a mortgage is a forced savings because a part of the monthly payment goes to paying down principal,” said certified financial planner Jennifer Lane, owner of Compass Planning Associates, a fee-only financial planning firm in Boston and Wellesley Hills, Massachusetts.
If you rent, save
“If you decide to rent you need to be disciplined to invest the difference (the amount the rent is less than mortgage plus real estate taxes plus maintenance or condo fee) on your own. Rents can increase over time faster than monthly home costs, so there is a break-even point. If you’re ready to settle down and stay for many years (seven-plus years in some markets) it still makes sense to buy,” Lane said.
New to the area
While you might be eager to lay down roots when moving to a new area, “it’s better to rent for a year or two to get the lay of the land before you buy,” Lane said. Give yourself time to figure out the best school districts, commute to work and what neighborhood is right for you.
Down-payment trouble
Getting together enough funds for a down payment is one of the biggest challenges for first-time buyers. While 20 percent down is not always required, paying less will mean you’ll have to cover private mortgage insurance and possibly a higher interest rate, Lane said.
“You also run the risk that the house will be worth less than you owe if you want to sell too soon. Remember, the Realtor gets 5 or 6 percent, so if you only have 10 percent equity from a small down payment you may have to pay money to make up the difference between the house proceeds and the mortgage balance at closing,” she said.
Surprise costs
“The cost of home ownership often surprises people. Especially condominiums or co-ops. When you own you’re responsible for maintaining the brick-and-mortar. If you are not handy that means hiring people to help. The building may be new when you move in but since you are buying to stay there you’ll be maintaining a 15-year-old building before you know it. Emergency savings and planning for maintenance is very important,” Lane said.