With the recent string of millennials graduating school and entering the workforce many of them must now consider whether or not they should be buying a home or renting. This can be an especially difficult decision if one still has a large amount of student loan debt or the inability to put a sufficient amount of money down on a house. A recent article from The Fiscal Times addresses the trend here.
Many young people are attracted to the first time home buyer loans, incentivizing their purchase decision. Some loans only require 3.5% down. Considering today’s low interest rates, this could provide a great environment for a first time buyer. Of course, a low down payment will create a lot more curiosity. Another thing to determine would be your debt to income ratio as this will directly affect the size of your loan, and even if you are able to get one. Banks look at this number closely to confirm that you are capable of making your monthly payments.
Here is a mathematical approach to assessing buyer’s ability to buy vs. continuing to rent:
Deciding to rent or buy is a very complicated decision with no certain answer
There are a many things to consider when choosing to buy or rent. See this flowchart from Business Insider. Although buying will build equity, owning a home comes with many of its own challenges. For example, you may need a repairman to fix broken appliances. Or, you may need to hire contractors to re-shingle your roof or replace the A/C. These are all costs that you must incorporate into your monthly expenditure. By doing so, you will possess an adequate amount of savings if problems like these do occur. Buying a home is an exciting and important step in creating financial stability for your future, but if the conditions are not right, a home could cause more harm then good to your financial standing.