In his recent State of the Union address, President Obama addressed our country's current real estate situation, including the fact that many American homeowners currently have underwater mortgages. While there has been some improvements to help those underwater homeowners in the form of changes to the Home Affordable Refinance Program (HARP), in today's real estate market it's not surprising if people are a bit gun shy about buying or owning a home.
What if I can't afford my mortgage in the future?
What if my home loses so much value that I eventually owe more than it's worth?
What if I have to move in a few years and can't sell my home?
If you've ever asked yourself these questions about home ownership, it could be time for you to look into renting versus buying a home. Believe it or not, sometimes it makes more sense to rent than to own. Here are 3 tips to help you figure out which option—renting or buying—makes the most sense for you, courtesy of Jessica Edwards of Coldwell Banker Real Estate. (Full disclosure: I used agents from Coldwell Banker to buy and sell my old and current homes.)
- Evaluate whether you have a steady income to support paying a mortgage. At or near the top of every potential homebuyer's mind is whether or not they can afford to buy a home right now. Buying a home remains a sound financial decision for those with documented income and a good credit history, and a steady income can provide a strong backbone for the initial down payment and future mortgage payments. However, if your income is unreliable, getting tied down to a mortgage may not make the most sense financially.
- Make a timeline of how long you plan to stay put. Buying a home is a lifestyle decision, and can be a very smart move if you're planning on staying in your home for a while—think five years or more. With proper planning a home purchase has historically proven to be one of the safest investments one can make. If you anticipate staying in a home for only one or two years, you are less likely to see a significant financial return on your investment. In addition, if you buy a home and live in it for fewer than two years, you may find yourself having to pay capital gains taxes.
- Crunch the numbers before making your decision. You can start by using this "buy versus rent" calculator on the Coldwell Banker website. It will help you see the costs of home ownership versus the costs of renting a home. For example, with buying a home, you have to take into consideration your mortgage payments as well as real estate taxes, insurance payments, and the maintenance costs that come with owning a home. With renting a home, calculating month-to-month housing expenses is as easy as inquiring about the monthly rent and average utilities.
Bottom line: buying doesn't always make sense and neither does renting. So be sure to speak with a real estate expert, your tax person, and a financial professional before deciding to rent versus buy a home.
