To Buy or Not to Buy: 3 Questions Every Renter Needs to Consider

Mon, 24 Apr 2017

Today, 37% of all U.S. households rent—the highest percentage since the mid-1960s, according to Harvard University's Joint Center for Housing Studies. One reason why: After the housing bubble burst in 2008, people are rethinking whether owning a home is a good investment.

The answer: That depends. Ask yourself these questions:

How long do you plan to stay in your next place?

If it's more than two years, buying may make sense. The New York Times advises, "Buying tends to be better the longer you stay because the upfront fees are spread out over many years."

Those fees include your down payment, closing costs, taxes and insurance—a substantial sum. Remember, too: Every time you move, selling one home to buy a new one, you'll pay those costs all over again. So the longer you stay in your home, the less of a bite you'll feel.

Are you renting because you think you're saving money?

That can be a fallacy, depending upon where you choose to live. In 42 states, MarketWatch found that it's actually cheaper to buy a home than to rent.

Renting of course is a pure expense, while buying a home saves money by building equity. Buying is an asset, renting is a liability—that's the conventional wisdom. But you have to look a little deeper to appreciate the implications of your decision. How much are you actually "saving" by renting?

Financial folks who study the rent vs. buy argument talk about the "opportunity cost" of buying a home. What if you keep renting but invest the money you would have paid on closing costs, taxes and insurance for a house? How big an opportunity would you miss? An important consideration—but it assumes you have an investment strategy that will deliver the gains you seek. If you're not a confident, consistent investor, the "opportunity" is just one more risk you don't need.

Are you buying a home because you think it's a good investment?

Sure, it's an investment in elbow room, comfort and happiness. But don't think of it as a financial investment. Americans have seen how quickly real estate values can fluctuate, which is a nice way of saying that the market can take a painful chunk out of your equity. In fact, after inflation, U.S. home prices have risen only 0.37 percent annualized, according to Nobel Prize-winning economist Robert J. Shiller.

On the other hand, owning a home protects you from rent hikes. You're making predictable payments on a mortgage.

And then there's elbow room, comfort and happiness.

With interest rates rising, it's prime time for home buyers.

The Federal Reserve has just announced a rate hike after a long period of stability. So if you're looking to buy, you have a rapidly closing window of opportunity to hold down your costs.

But if you're still wavering over whether to rent or buy, here's help:

Two decisions to make before you make any other decisions

1. Try The New York Times' Rent Vs. Buy Calculator

It gives you a clear way to compare the different factors you have to weigh, including mortgage details, closing costs, and maintenance fees.

2. Visit a local Webster banking center to speak with a mortgage specialist.

Bring your goals for a new home and your questions about financing. A Webster mortgage specialist will listen to your unique situation and help you get the home you want with financing you can comfortably live with.