There is a homebuying myth that needs dispelling. It has to do with mathematic certainty. The truth is, no formula exists for knowing if and when you should buy a home. Ask most economists and they'll tell you that there are far too many emotional factors involved for there to be a scientific determination of whether you should buy. In addition to your emotional landscape, your finances and the mutability of the market only further complicate the equation. But what you can do is to make sure buying a home is actually possible for you. And after you've done that, ask yourself the fundamental question: Is this what I really want?
No one has to buy a home, no matter how well-positioned they might be to do so. In fact, the best advice I've received in regards to home ownership is to forget the own vs. rent decision and to simply focus on finding a city, a town, a neighborhood where I want to live. Wherever you land, once you find your place, then you can address the opportunity for ownership.
As of September 2013, buying was 35 percent cheaper than renting in all 10 of the major metropolitan markets. Despite these numbers, an increase in former homeowners are now looking to rent, competing against empty nesters moving into city centers, debt-laden Millennials or "career renters" as they're being called, and champions of the sharing economy, who are bunking in higher-price rentals. If the American dream used to be about stability (and therefore security), the Millennial dream, both due to financial circumstance and preference, seems to value flexibility (and therefore freedom) adding another layer of complexity when it comes to renting vs owning decision. In addition, foreign investors are taking advantage of the currency discrepancy to purchase U.S. properties with the intention of renting them out for higher returns. These are all factors of the current economy and housing market, but they dictate different outcomes for different people. We can only look at what we know to be consistently true across time and behavior.
One emotion that is consistently reported by most homeowners is the feeling of finally having "roots" -- a sense of stability and pride. Plus, the dedication and creativity that come with making improvements to a home can increase its appeal and, in many cases, its financial value. A homeowner doesn't need to worry about surprise rent increases that might force a move, taking you out of your comfort zone and your children out of a school district.
Making the transition from renter to buyer involves a set of key decisions that can quickly alleviate your anxiety around what will likely be the biggest financial purchase of your life. To get your head and your heart in the right place to make these decisions, do the following prep: take the time to consider the angles; find the calm you need to hear your inner voice; align with your core priorities and values; be honest with yourself and with others; and don't wait forever to decide to be an owner -- no decision is a decision.
If you're waffling between renting or buying, consider the following:
Do you have four to five years to invest?
If you know with some certainty that you can and want to stay in an area for at least four to five years, buying might make sense. On the flip side, if you have a job that involves frequent moves, buying rarely makes sense, between moving, insurance, closing, agent costs and property taxes, you're better off with something more flexible.
Do you know what you can really afford?
Knowing what you can afford is your responsibility, not that of your bank. One reason for this is that it's actually more about what you can maintain, than what you can spring for. My rule of thumb is: Don't spend more than 20 - 25 percent of your pretax income on a house. Period. That includes monthly mortgage, insurance payments, and property tax.
Are you building your life or buying a house?
Finding the right house doesn't just center on the number of bedrooms or bathrooms it has. It's about first establishing what kind of life you want to build for yourself -- those bigger themes that matter to you on a day-to-day basis, and why. Figuring that out early will dramatically help you narrow down cities, neighborhoods, home styles, features, and price ranges. If I was giving advice to early 20-somethings, I'd tell them that homebuying might loom larger than they expect and to begin considering the life choices involved. The earlier you start managing your money and aiming for those big things you want out of life, the better you'll be equipped to achieve them.
Do you have solid partners to take the journey with?
The difference between a good and a great REALTOR or mortgage lender can leave your home hanging in the balance. Understand how these prospective partners work, how they're paid, and how to get the most out of both. In turn, this means learning how to be a great client -- the best in their industry tend to want to work with the best buyers.
Do you know what the insiders know?
The problem with any complex industry is that it's easy to make mistakes or missteps simply because there's just too much to learn and retain. That's why guiding you through a very clear journey with unbiased information is our goal at Doorsteps and realtor.comￂﾮ (and frankly the goal of any good REALTOR or mortgage lender). We phase our user experience to align with your real-world experience, applying wisdom at the right time and place to help you understand more about the process and about yourself.
Can you harness your logic and your emotions in equal measure?
Let's face it: buying a home is an emotional process. Most people will tell you it's better to put feelings aside and just focus on the rational side of the transaction. Sort of. You can use these natural emotions to your advantage, but only if you know how not to let them trip you up. Let them guide you to your core values, share them with people, adapt them as needed, but commit to pure logic when it's time for a critical decision or compromise.
Are you organized? Can you stay that way?
Buying a home involves a ton of paperwork and back-and-forth with various stakeholders -- for months. Luckily, if you stay organized, overseeing the process and keeping up with everyone's progress won't be a time suck or a chore. If you know exactly when to hire an inspector, for instance, and what documentation they'll need from you, you can make every interaction productive and low-stress. Consider the various tools out there to help you stay on task, whether you're better with analog paper and pen checklists, or digital folders, use your system without fail and make sure it's accessible from multiple locations.
People of all ages frankly, not just Millennials are thinking differently these days and choosing to rent instead of own. Depending on where you live and your lifestyle and plans for the next few years, renting could be better for you. Asking yourself these questions though and dissecting what's needed to transition from renter to owner can help end your anxiety around what is probably the biggest financial decision you'll make -- and one of the most emotional landmarks in life.