I was having an interesting discussion the other day about whether a college student or recent graduate buy a house instead of rent. Prices of houses and condos have gone up lately, but are still affordable in many places, and in some markets, the cost of renting may be about equal to the cost of a mortgage and such.
Furthermore, the allure of the American dream is alive and well as seen by the number of students graduating college with each passing year, all in the hopes that a college education will provide them with a better life. We’ve been told that after a good education, we can get great jobs that will afford us a certain type of lifestyles and trapping such as a top-of-the line car, a house to end all houses and a dog named Skippy.
A lot of college grads are asking themselves a very important question which, if not answered correctly, will have them battling poor financial health for anywhere between 5 to 10 years, or much longer depending on the choice they make. Your first home will provide you with countless memories that can last you a lifetime. However, the question of whether you should buy or rent is one that needs careful consideration.
The Benefits Of Renting
- Renting saves you a lot of money in the form of maintenance and repairs. This is because it's the landlord’s responsibility to fix that broken pipe or make sure that the grass is cut every so often. If you decide to buy a house, the amount you will spend maintaining your property will add up over the years. This could’ve been money you could’ve used for other types of investments or put down as part of your retirement fund.
- Renting doesn’t need much equity, since all you have to do is identify an apartment that suits your needs, contact the agent and move in once you’ve paid your deposit and signed the papers. This is cost-effective, especially if you’re in college and don’t have access to large amounts of money.
- Renting may also help if you don’t want to be tied down at a particular location for extended periods of time. If, for instance, you have a 1-year lease and decide to move to Costa Rica once it expires, nobody can stop you. Buying a house will mean that you won’t have this kind of flexibility since you’ll be stuck in one place, forced to keep making payments as well as take care of the house for extended periods of time.
- Renting also gives you the peace of mind in knowing that should anything happen to your apartment, you’ll have the freedom to up and leave. If you buy a house and have it destroyed due to a hurricane or fire, you may have to start from scratch, something that’s not so easy if you’re young and in college.
If you’ve decided to go ahead and rent, there are a couple of things you need to consider. Here’s a helpful list of questions that you can use as a resource. These questions can help you identify any issues as well as benefits of your choice of property before making your final decision.
Do You Qualify to Rent?
Renting an apartment really isn’t as cut-and-dry as most of us would like to think it is. You will need to take your credit score into account as well as your current income before looking for houses in particular areas. Look at your current gross income and see if you’ll be able to comfortably rent an apartment without having to spread yourself too thinly. A great way of making sure that you’re always the first to know when a rental in your price range opens up is to set email alerts on sites like livelovely.com.
Cost of Living
Just because you found a great deal on a rental doesn’t mean that you should pack up your belongings and hurry on over to your new place. Affordability may be one-sided, in that you may be moving to an area that has a high cost of living. The prices of food items such as milk, eggs, bread and other essentials should feature in your pre-rental list. To be on the safe side, simply Google the name of the county or state you wish to live in and then add ‘cost of living’ before or after it to get a clear picture of whether or not this place is holistically affordable.
Other factors to consider when renting a place include the distance between your home and work, whether or not you want to shack up with a roommate, the availability of a washer/dryer, parking space and whether or not you’ll have access to a sizeable backyard or balcony to entertain friends during weekends.
At the end of the day, you have to really weigh your options and carry out in-depth research before deciding to rent.
If you’ve decided to dig in your heels and buy a home straight out of the gate, we have some advice for you as well. Buying a home is a huge undertaking that shouldn’t be done on a whim. In case you still haven’t made up your mind, here are a few advantages of buying that can help nudge you in that direction.
Benefits of Buying a House
- Buying a house gives you security that renting can’t provide. Should your income remain the same over a long period of time, you can automate your mortgage payments, giving you stability and the confidence in knowing that you’ve got accommodation sorted for the better part of the future.
- Buying will also give you access to tax credits which can offset the cost of buying your home. All you have to do is make sure to itemize property-related expenses when filling in your tax return.
- Even if you decide not to stay in your home for long periods of time, you can still make money off it to help pay for the mortgage. For instance, if you don’t want to be tied down to a home and want to travel for a couple of years first, you can opt to rent it out at a price that’s slightly higher than your mortgage amount. This way, you’ll have an income stream as well as be able to pay off your mortgage in a convenient way.
- You can also rent to roommates that live with you, which could offset some or all of the mortgage and other expenses. Some of the millionaires we've interviewed followed this strategy to get a leg up in college.
- Owning a house is a good idea if you want to have more autonomy and control when it comes to home improvement projects. You’ll be free to decorate whichever way you see fit, and you can make as many changes as you’d like. In fact, the value of your home will increase over the years provided your home improvement projects are done well and add more quality and comfort to its occupants.
- Buying a home will eventually free you from making mortgage payments. This basically means that you’ll be home free after a certain amount of time has elapsed compared to renting which will have you making checks out to your landlord for an indefinite amount of time.
- Buying would make more sense in case you’re looking to start a family. You’ll have the stability that comes with knowing that you own your home as well as a sense of community especially if you buy in a family-orientated estate or county.
Take Care of Your Debt
Buying a house while saddled with debt is a recipe for disaster. Make a conscious effort to pay off all your debts before committing to a house purchase since factors such as your credit score may come back to bite you in the future. You can do this by coming up with a debt repayment plan as seen in this post or allocating money to a debt repayment account that you can use to slowly whittle down your debt. Your credit score as well as current debt can throw a wrench in your dreams to own a home.
Student loan debt plus a mortgage can be a really bad thing if not managed correctly.
One of the biggest factors of buying a home lies in what amount the bank gives you with regard to your pre-approval amount. This can be the biggest challenge for college students looking to buy a house. The pre-approval will give you your monthly mortgage payments and takes into account your financial health at the moment (your credit score, annual income and previous financial history with your bank). A word of caution here: just because you’re given a certain mortgage value doesn’t mean you should go with it. In fact, get a house that’s that's a slightly lower price so you can pay off your mortgage without having to financially strain yourself every month with the payments.
Whether you’re looking to buy or rent, you should take inventory of your student loan debt and other debts you may have and work hard to slash these down. You may also want to consider adopting a frugal way of living for the first couple of years so that you’re able to pay your rent or mortgage without pulling out your hairs every end of the month. At the end of the day, you should do what makes more financial sense in the long run without sacrificing on things like having an active social life and living out your dreams.