To paraphrase Hamlet, “To buy or to rent…that is the question.”
Those two options have been pondered by those needing shelter for generations, and the answer depends on a variety of circumstances.
Buying a home used to be part of the American dream. Not so much any more. Home ownership used to be the logical first step after marriage. The decision to wait to marry, student debt obligations, basic affordability considerations, and stricter lending requirements all factor into the decision by millennials to delay or dismiss buying a home. It’s considered too steep of a hill to climb. The decision to buy a home also requires a long-term commitment, which some millennials aren’t willing to make.
From a purely financial standpoint, however, if you are paying more than $2,500 per month for a rental, home ownership is a no-brainer. The average home is Pierce County is approximately $500,000. If 3 percent ($15,000) is required as a down-payment, the monthly principal and interest on a $485,000 loan at 3 percent interest is approximately $2,050. Add property taxes ($375) and home insurance ($100) and the monthly payment is approximately $2,500. Of course, more inexpensive homes exist, which obviously make the monthly payment cheaper.
Ninety percent of ultra-wealthy individuals created their wealth through real estate and the generation of wealth is an obvious and attractive by-product of homeownership. Renting provides shelter. Period. Home ownership provides shelter, a gradually decreasing mortgage balance, and an increasing value of your home. That combined equity represents literally trillions of dollars in today’s market.
Of course, it’s not quite that simple. Real estate markets go up and down, and some people buy and sell at the wrong time. The uncertainty of the future (job transfers, retirement, growing family, health) all contribute to a buyer’s decision to rent rather than buy. Having a capable Realtor and lender to help you navigate those waters is critical.