The Wall Street Journal Guide to Starting Fresh: How to Leave Financial Hardships Behind and Take Control of Your Financial Life by Karen Blumenthal

Author:Karen Blumenthal
Language: eng
Format: mobi, epub
ISBN: 9780307588746
Publisher: Crown Publishing Group
Published: 2011-12-19T21:00:00+00:00

BUY OR RENT?

Once you’ve made the decision to move, your next consideration is whether to buy or rent. Although you may not feel certain, either is a perfectly good option that comes with some real pluses and minuses.

Home ownership is often touted for providing safe and stable neighborhoods and allowing owners to build equity in a home. But as you already know, it’s wickedly expensive, requiring a sizable down payment, ongoing maintenance, taxes, and sometimes homeowners dues or condo maintenance fees. In addition, the fickle nature of home markets means that you shouldn’t buy a house that you don’t plan to own for at least five years—something that can be hard to predict if you’re still in the throes of a financial or personal setback. The way prices can fluctuate means that you can lose a lot of money in the short term. The way mortgages are structured (you pay mostly interest at the beginning and mostly principal at the end), you won’t really start to build equity for a few years. Owning your home for at least five years gives housing markets time to recover or climb and affords you some time for starting to pay down some of the loan.

Renters, by contrast, get to turn over most of the headaches of home ownership to the landlord, who is responsible for maintenance, upkeep, taxes, and other costs. Because most leases run for just a year, you have more flexibility if a job opportunity or family situation requires you to relocate. In addition, if you’re new to a community, renting gives you time to get to know different neighborhoods, traffic patterns, and pricing before you settle on an area to buy in.

In both cases, the same rules of thumb about what you can afford apply, though with renting you don’t need to include property taxes. Still, rent or own, you shouldn’t spend more than about a third of your gross pay on housing, or have home costs and other debts that add up to more than 36 percent of your total income.

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