Should I rent or buy a house?
Updated: Mar 4, 2021
It’s no secret that Millennials haven’t been buying homes as much as previous generations. There are many reasons for this:
Millennials are getting married and having children later, so they aren’t hitting the natural point of buying a home as quickly
They have a lot of student debt they must pay back first
Many Millennials pay high rent when taken as a percent of earnings, thus making it harder to save for a down payment
Older generations are aging in place, which affects the supply of homes
Millennials have a bigger aversion to owning homes because they watched houses get foreclosed on during the Great Recession
Buying a home made the most sense for me personally. When I graduated from college smack in the middle of the Great Recession and started working a retail job, I decided I could support myself without having to live in my parents’ home. So, my friend and former roommate and I went to look at apartments. We found a 2/2 that was old, but clean that would have run us about $850 each, including utilities. I was basically all set on that when my mom gave me the idea to go look at houses.
It wasn’t long before we realized that was the way to go. By then, I had about $13,000 in the bank. I settled on a 1300 square foot, ranch style 3/2/1. Boy did it need some work! (I will never forget that brown carpet.) The seller and I settled on a $125,000 purchase price and she would throw in a new roof. My parents offered to loan me $6,250 (5% of the purchase price) and I put down 5% so I could have a conventional mortgage, rather than a Federal Housing Administration (FHA) loan to avoid the additional mortgage insurance premiums. My interest rate was 3.375%. This made my payment about $750 (including PMI, taxes, insurance), plus $100 to my parents. I ended up getting a roommate to pay me $550 and I was paying less than I would have been in that apartment. (BiggerPockets refers to this as a “house hack.”)
When you buy a house, any change in value (increase or decrease) goes towards YOUR equity, how much of the house you own. Imagine putting $10,000 down on a $100,000 house. You would have 10% equity. If the house value increase to $110,000, you would own $20,000 out of a $110,000 asset, or 18%! When I sold that first house, I more than doubled the money I’d put in (down payment, payments, remodeling bathrooms, etc.).
There are pros and cons to home ownership. An obvious pro for me was saving money on a monthly basis and building equity along the way. The biggest con thus far for me has been when the AC broke and I had to pay $1,000 to fix it. When it broke again, I had to replace the unit for $3,000. When I bought my second house, I had to replace that AC within the first year as well.
One big pro that I hear from friends and family about renting is that they don’t have to fix anything. My cousin’s AC went out, he called his landlady, and she had someone out there to fix is the next day. No check for multiple thousands came out of his bank account like it has from mine. Twice. Another is that you can move easily, just by giving enough notice to your landlord.
In short, owning a home could save you money on a monthly basis. You’re going to build a great payment history and equity in the home. But you will have some big expenses, so you’ll need a solid emergency fund. It will also take longer to uproot yourself and move. Only you can decide what makes the most sense for you. My advice would be to go ahead and buy a home.