For the longest time, owning a home was the true American Dream. When one owned a home, it signified financial security and the accomplishment of a major financial goal. However, with rising housing prices and a slew of other problems such as student debt, owning a home is simply a pipe dream for many young Americans.
With such a long and difficult road needed to own a home, many people wonder whether or not they would just be better off renting, rather than owning, especially in markets such as the West Coast. So would you be better off renting one of the mountain view apartments, or saving up for real estate in Northern California?
One of the biggest factors in whether you should rent or own is the amount of money you currently have saved up. Although mortgages can be used to pay for a home, you still need to put down a hefty down payment, typically around 20% of the home’s total value. As a result, even if you’re buying a relatively cheap home at $200,000 you’ll have to have a down payment of around $40,000.
For many people living paycheck to paycheck, this is a lot of money to save up which makes owning a home unrealistic. If you don’t have a good chunk of money saved up already and aren’t in a good position to start saving, then renting should be the obvious choice for the foreseeable future.
Another thing to consider when deciding whether to rent or own is your future plans. Renting gives you a lot of flexibility while owning a home is a long-term commitment that could place you in a location for a decade or more.
When you rent, you can relocate and take a job in a new location as soon as your lease is over. However, when you own a home it is much harder to uproot and relocate, making it a much better option for those who are settled with a stable job and are looking to start a family.
If you’re looking to buy a home, you need to analyze the housing market before you make a financial decision. The housing market goes through many different phases, with some markets being better for buyers and others better for sellers. If demand for homes is extremely high, then buyers will bid against each other, driving home prices up and creating a seller’s market.
If it is currently a seller’s market in your local real estate market, then it is best to rent for a while longer and wait for the market to shift in your favor before you make a big purchase.
Just as important as savings is your credit score and current debt. In order to get good rates on your mortgage, you’re going to need a good credit score. You can obtain a good credit score by paying off debt and being on top of bills and other payments. Even if you have enough money saved up for a down payment, you may be better off using that money to get out of debt and catch up on other financial responsibilities.
There’s no sense in rushing into owning a home if you’re not in a stable financial position and are still drowning in debt. If you’re in a rough financial situation, it’s wise to use your savings to improve your situation rather than using them to buy a home.