Refinancing? Use This Insider Trick to Quickly Boost Your Credit Score
Over the past 20 years, I’ve bought three homes, but took out over a dozen...
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Millennials are often known to be much more tech-savvy, ambitious, and achievement-oriented! But when it comes to buying a home, they are lagging! Yes, you heard it right!
A 2019 Bankrate survey has found that almost two-thirds of millennial homeowners regret their purchases!
Maybe due to high mortgage rates or lack of savings or for any other reasons, millennials are regretting their homeownership or refraining from buying a home!
So, another option is renting a home! Well, if we talk about that, millennials spend almost $93,000 on rent before hitting the age of 30! And most likely, with time, this amount will increase as the rent prices are increasing in our country!
By the way, are you also a millennial? Are you thinking about whether you should rent or buy a house?
If yes, then relax, buddy! We are gonna help you in your decision-making process and plan for your future wisely!
Here are some of the tips that can help you to decide whether to rent or buy a house! Let’s start!
Well, you need to consider various upfront costs that come along with buying a home, like:
1. To make the seller understand that you are pretty serious about buying a home, you need to pay an earnest check. Usually, the funds are deposited into an escrow account. And those funds are held until closing and credited against your closing costs.
2. You will need to make a down payment of 20% of your purchase cost. Doing so, you can avoid paying for private mortgage insurance (PMI).
3. Usually, property owners pay taxes upfront. So, you need to compensate the seller for the taxes between the closing date and the end of the current tax period.
4. Once the deal is mutually accepted, you need to make a thorough investigation of the house by a licensed inspector. Usually, they charge anything from about $300 to $500. And it’s necessary to find out if there are any defects or necessary repairs required before you buy the house.
These are a few upfront costs that I have mentioned here! Along with these, there are several upfront costs like an appraisal fee, taxes, homeowner’s insurance, etc. These upfront costs will be bundled with closing costs (about 2% to 5% of your purchase price) while buying a house.
You don’t need to shell out much for the upfront costs for renting a house. Here are some of the upfront costs which you need to pay:
1. Application fee: Many landlords can charge you an application fee. So, if you apply for multiple properties, you might have to pay a substantial amount.
2. Broker fee: If you have approached a for-fee broker, then you need to pay a fee for helping you to find a home.
3. Security deposit: Usually, landlords require a security deposit equal to 1 or 2 months of your rent. It’s to insure property damage, repairs, rent delinquency, etc.
4. Pet deposit: Some landlords may ask you to give a pet deposit to keep your pet in the house.
If you calculate all these costs, it will be much less than buying a house. So, if you are not yet ready to afford the expenses of homeownership, you can save money by renting a house!
You can itemize your tax deductions to save taxes through mortgage interest deduction. Many of the homeowners plan to make up for the additional costs of your homeownership by these tax savings! But The Tax Cuts and Jobs Act has lowered the amount of mortgage interest that can be deducted.
Now, you can deduct home mortgage interest up to $750,000 of debt on a primary or secondary home!
However, don’t buy a house just because you can save taxes by mortgage interest deduction. Rather, check whether or not you are financially prepared to buy a home!
One of the major obstacles for millennials to their homeownership is the student loan burden! According to Experian data, in 2019, the total outstanding student loan debt in our country has hit almost $1.41 trillion!
So, if you are having student loan debt, I would suggest you not to buy a home right now! The reasons are:
● If you already have debts to pay off, it might hamper your mortgage payments. The reason being, a substantial part of your paycheck might go to pay off those debts. And eventually, you might be left with little or no funds to pay off your mortgage loan.
● If you apply for a mortgage loan, most likely, lenders will check your debt-to-income (DTI) ratio. In fact, it’s one of the important parameters which determines whether or not the lender will approve your application!
So, having a large number of debts can increase your DTI ratio. And thereby, it can decrease the chance of your mortgage approval!
So, make sure to get rid of your debt problems before you plan to buy a house! And, your usage of available credit will be lowered when you swipe your credit cards less. Eventually, it can improve your credit score as your credit utilization ratio is likely gonna decrease! And thereby, it can increase the chance of approval of your mortgage application!
As you can see, owning and renting a home have their own pros and cons! I know, buying a home comes with many expenses. And you can brace yourself from those costs by renting a house! But being a millennial, is it a wise decision for your future?
Let’s say, the cost of owning a house is $2,500 a month. But you can rent the same house at $2,000.
No doubt, you can save $500 a month if you rent that house! But in the long run, you can grow your equity in the house by putting in that extra $500 through mortgage payments! And owning your home can be an asset to you!
However, if you can’t qualify for a mortgage loan or afford a down payment now, you can opt for rent-to-own agreements!
Under this agreement, you can rent a home to stay over there. But with a condition that you will buy it in the future. And in the meantime, you can save your down payment to purchase the property in the near future.
So, in short, you need to analyze your situation first and decide whether to buy a house or rent it! But in the present scenario of global emergency due to COVID-19, mortgage rates in our country have dipped to an all-time low! And obviously, homebuyers can take advantage of the low-interest rates.
However, many homeowners who wished to rent out their houses have put a hold on it! They don’t want strangers to reside in their houses in this situation.
And, many advisers are predicting an economic recession; so, before you think of purchasing a property, make sure you analyze your finances. Will you be able to make the mortgage payments if you face a job loss? Consider the pros and cons before making any decision.
So, keeping the present scenario in view, before you plan to purchase a home or rent it, decide wisely!!
About this Guest Contributor: Andy is a blogger at Penny Less Dad and financial writer associated with the Oak View Law Group. He is a debt expert and a member of several online forums where he shares his advice as well as tips to lead a financially independent life.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.