We know all about the magnetic field that draws you up the front steps of every Colonial house you pass, but don't rush into it -- renting is still a viable option for some of you. Where do you stand? There are certain big-time factors that should contribute to your decision. Here's how the experts helped two newlywed couples decide.
Couple #1: Erica and Daniel
Location: Bakersfield, CA
Goal: To live in a 2-bedroom, 2-bathroom home in Bakersfield
Typical cost: $375,000
5 percent down payment: $18,750
Monthly mortgage: $2,370
Price to rent a similar home: $1,500 to $2,500 a month
Verdict: They bought a 2,150-sq. ft. home in Bakersfield!
Reasons Why
Time Plan: Erica and Daniel plan to be in Bakersfield for at least 5 to 10 years, if not longer. If they were only going to be there for a year or two, renting would be a better a option because the costs of brokers, closing, moving, and all of the other little things that add up would be more of a burden than a profit.
Location: They know the marketplace well, and there's a pretty stable employment base in their community. Bakersfield is two hours north of Los Angeles and is ranked the 10th fastest growing city in the nation. Sounds like a town where value will spike, not plummet. In fact their house has already appreciated about $50K!
Available money: Based on their income, Erica and Daniel could've bought a home that was valued at $500,000, but they elected to play it safe and get the nicest house they could afford at the lower end of the scale -- one that didn't need any work. "A 'handyman special' isn't a good choice if a couple won't have much time to devote to fixing up a home or if they lack the funds and the drive," advises David Howell, executive vice president of McEnearney Associates, a Virginia-based real estate company just outside of Washington D.C.
Future income: These newlyweds are both in school and plan on having their graduate degrees within the next five years. Once that goal is reached, their salaries will rise thanks to their marketable education and time to devote to full-time jobs. "When a couple has a very good idea of what their income will be over the next several years and how much it'll increase, it means they assured that their bank account will grow, not diminish," says Howell. They'll be able to meet their mortgage payments and perhaps have enough left over for home improvements.
Couple #2: Alonna and David
Location: New York City, NY
Goal: To live in a 1-bedroom apartment in a high-rise building that has a doorman for a few more years before moving to the suburbs
Typical cost: $615,000
Current monthly rent (in this type of apt): $2,600
Down payment: The 20 percent required is $123,000
Monthly mortgage: $2,950
Monthly maintenance (required in NYC): $965
Total monthly payment: $3,915
Verdict: Keep renting their 700-sq. ft. 1-bedroom!
Reasons Why
Time plan: They love living in Manhattan, but they don't plan on staying there for the long haul or even another five years. "If a couple is uncertain how long they'll be in an area, renting probably makes more sense than buying. With the costs associated with closing and selling, it can be hard to truly break even when owning for just a year," says Howell.
Location: While New York City is a hot market and there will always be people ready to pounce on a Manhattan pad, Alonna and David need to know the profile of their community and decide if it's sustainable. Take the unemployment rate for example. "If jobs are growing, that means there'll be more willing and able buyers," says Howell. "But if my city was having tough times or a major employer was facing cutbacks, I'd be much more careful about buying."
Available money: Renting helps them save money. It's true! They know exactly what housing costs will be each month, have worked them into their budget, and devised strategies to save. And there won't be a surprise broken fridge to replace. "When you rent, the landlord is responsible for major repairs. Homeowners may face unexpected repair or maintenance costs," says Howell.
Future income: Taking on a major financial commitment like a mortgage might be pretty tough if uncertainties arise about future jobs or salaries. Alonna and David don't expect to lose their jobs, but if they want to start a family, Alonna fears they can't count on her income for a while. In addition, if her husband wants to look for work at a less demanding office so he can spend time with his new family, he might need to take a salary cut.
-- Grace Jidoun
See More: Buying a Home , Renting