Deciding whether to rent or buy is a tough decision, especially for single people and young professionals who are just starting to launch their careers and making long-term financial plans. According to a survey by rent.com, 85% of young people between ages 18 to 34 are renting, but this doesn’t mean they’re opting for much cheaper options. In fact, millennials have spent over $93,000 in their rents as soon as they turn 30.
These figures will continue to rise as rent prices reach record highs, pushing more young adults to enter the home buying market. The rising prices have become motivating factors in millennials’ decision to buy their own property. With a booming housing market during the COVID-19 crisis, millennial homebuyers look for the best house and land deals in great neighbourhoods.
The shift from being a renter to a homeowner as a young professional can be challenging because you have anything but yourself to navigate the housing market. But for those who are just starting with their savings, renting may be the best option right now. So if you’re confused about whether to buy or rent a house, we’ll help you understand what it means to be a renter and a homeowner as a young professional.
Consider all the costs involved
Cost is the most obvious factor when deciding to rent or buy. But it’s also necessary to use a well-rounded approach to understand the financial picture of the two options. There will be times when purchasing a house is more cost-efficient than renting, but other factors will also come into play about when and what buyers should purchase.
Apart from the purchase price, young adults must also consider the closing cost, down payment, co-op or homeowners’ association fees, property taxes, insurance, maintenance, and utilities. These costs vary differently depending on your target property.
The state of the housing market is also important. In some cities, mortgage payments and rental rates are a little different. The down payment is also a determining factor, which can be difficult for young professionals to cover, especially those in the early years of their careers.
Another factor is the interest rate, which affects how you’ll pay the mortgage and rental rates. After all, renters cannot control how much the landlord will charge them. If you notice the rental price increases every year, then consider buying instead.
Apart from costs, young professionals must also consider their future career path when deciding between renting or buying. Career trajectory has a significant impact on how you’ll pay for your living space. Homeownership involves a serious financial commitment, so if your income won’t increase in the next few years, then buying a home is not an ideal option for you.
If you’re planning to stay in your current space for the next few years, buying a home would be a better decision. But you should also look at other possible scenarios, such as transferring to a new work location, moving to a new job, or having a family.
Do it when the time is right
If you prefer renting for a few more years before buying, don’t waste your time. Use this opportunity to be financially prepared to get that dream home.
Most young professionals don’t understand the concept of credit scoring. Although they’re not the only factor that affects mortgage decisions, your credit score is critical because the higher the credit score, the lower the interest rate you’ll get for a home loan. If you’re recently starting with credit, open one to two credit cards but don’t charge your credit card to get rewards and buy only what you can afford. More importantly, pay your bills on time.
Review the growth potential of your salary to determine your budget strategy and create a financial plan until you’re ready to purchase a house. If you’re drowning in a pile of debt (e.g., student loan), work on paying the loan first to give yourself some breathing space and be more financially ready to pay for a new home. Lastly, think about the closing costs and down payment. While you can place a lower down payment when buying a home, make it at least 20% to avoid private mortgage insurance (PMI).
Buying and renting have their own advantages and drawbacks for single people. Renting will help you avoid considerable costs, such as property taxes, homeowner’s insurance, repairs, and upgrades, but owning a home can be a much cheaper option depending on your chosen property and neighbourhood. Weighing the pros and cons of each option and your financial well-being are the best ways to determine which option makes better sense. What’s important is to keep your end goal in perspective.