Should I buy or rent?

[kosh525]

Greetings everyone! Been a long time lurker of the forums, first time poster.  Trying to get a mustache growing and I need some advice on a very tough situation.  I am a recent college grad and will be getting married to my fiance in Sept.  We hope to be living together before the wedding.  We are trying to weigh the pros and cons of renting vs buying in our situation.  Here is the breakdown of our income, expenses, and debt:

Debt
Student Loan- $14500
Car Loan - $6300
Fiance Student Loan - $12500
Fiance Car Loan - $5500
Total Debt - $37000

Total Income - $4700/month

Expenses Per Month

Student Loan -100
Car Loan -160
Fiance Student Loan - 80
Fiance Car Loan - 100
Food - 400 (Our set limit once we move out of our rents' houses)
Cell Phones-   150 (will be lowering this once we are out of contract with ATT)
Pets -50
Car Insurance -180
Gas - 150
Clothing- 50
Utilities - 150 (again, expected when we move out, just an estimate and not an actual figure)
Internet - 50 (again, estimate, we do not expect getting cable)

We have been condo shopping and have found that a mortgage with taxes, insurance, and maintenance would be around $1100 - $1200/month for us.  We have had some trouble getting a mortgage because I currently work as a temp so they have only been using my fiance's income to determine how much we can afford to buy.  Because of that our price range has been limited to around $120k in our area (NYC Tri-State area, we weren't planning on spending a ton for a condo anyway).  We have surprisingly have found places within our price range in this area, but they are a bit of a drive from our current jobs.   I don't mind finding a job closer to where we live and neither would my fiance.  We can put $25k as a down payment,  but the closing costs will leave us with very little money.  I worry that if something were to happen with one of our jobs in the few months where we will be trying to build our cash reserves and paying down debt that we will be struggling to make ends meet.  I am afraid though that the housing market has picked up and I may never see mortgage rates or condo prices like this in my area again.

Renting is the other option we have considered.  We have looked online right now and have seen that rent could be anywhere from $1200 - $1600/month for the places we have been looking at.  The advantage to renting for us is that the upfront costs are considerably lower.  This would leave us with the $25k we were going to put as a down payment.  We could use this down payment money then to pay off debt.  We could easily pay off our car loans, possible one of our student loans, and still have money left over to keep as an emergency fund (we have about 3k right now as an emergency fund). Paying off all our debt free up 440/month. We would be able to become debt free faster if we went this route.

I have used the NY times buy vs rent calculator, and it tells me that buying is better than renting after 2 years.  If I am paying a mortgage at least I am putting equity in a house and my fears may never come to fruition if we never lose our jobs and I am taking advantage of the cheap home prices and rates of today, but renting has the appeal of becoming debt free faster and giving us a decent money cushion should anything happen to us.

Any input is greatly appreciated, we are in a bind and do not know for sure what is the best move in this situation.

[meadow lark]

Hard one, but I suspect renting for 6 months to a year would make your lives less stressful.  The wedding is a big stressor, it is nice to do one big thing at a time.  Just remember to add in the monthly HOA costs when you are figuring out buying. 

[Khan]

Recent college grad? Then I feel this is an appropriate question, do you want to put down roots where you currently live, and thus make it a lot harder to move to where new opportunities lie? Homeownership is a big thing, and is so ingrained in our culture that I fear a lot of people don't look at it right.

See this Atlantic article
http://www.theatlanticcities.com/jobs-and-economy/2013/05/link-betweeen-high-levels-homeownership-and-unemployment/5520/

I am afraid though that the housing market has picked up and I may never see mortgage rates or condo prices like this in my area again.

That's a valid concern, but understand that outside of real estate bubbles, houses have mostly tracked inflation. The mortgage rates you may not see again, and that is true, but it's a product of the times, and there's bound to be something that happens in the future where blood will again be on the streets(.boom, financial crash, EU implosion, future of employment). Also, do you think that in 10 years you'd be happy with whatever you bought at this price now(outside of speculation as to price movements).

Go rent a nice little shack with your soon to be wife, explore your options in location and living conditions, and see where you want to wind up. Pay off some debts, see if you find a steady job, etc.

[matchewed]

I'd personally rent and kill some debts. Especially if you have stupid debt like car loans. That will free up cash flow so you can put more money down in the future.

Don't let the fear of losing out on some opportunity drive your actions. It's bad for investment and it's bad for life. Putting equity in a house is an overrated benefit in the short term and iffy particularly when discussing condos which may have values go all over the place.

[Rebecca Stapler]

It sounds like you're still a bit unsettled and unsure where you'll be for the long term, which favors renting. Some people say that renting is throwing away your money, but when you think of the costs of owning a condo, you're paying a lot of money into things that don't give you equity either: HOA fees, taxes, and interest. Not to mention if the condo is depreciating.

The job factor is also big -- is it worth it to have a long commute every day just for the sake of owning versus renting? It seems like the monthly costs are the same.

[rubybeth]

I'd echo others and say you're better off renting for a bit, even just a year, to pay off debt and build a healthy emergency fund before buying. Might you also get a more stable job that allows you to get the mortgage that you want or at least improve your interest rate by paying down debt? I'd also add that the first year of marriage has its own challenges aside from buying your first home together. Just try to rent toward the bottom of your budget and not the top, and pay off those car loans immediately.

I really understand the pull toward wanting a house. DH and I have been married nearly 5 years and when I think of all the rent money we've paid, it makes me kind of sad. But I also have to remind myself of all the things that have happened that made us relieved that we were renting: job interviews for jobs in other states, getting a job just in the nick of time to start paying on student loans, problems with loan consolidation that doubled our payments for 6 months until it was sorted out, both of our cars dying unexpectedly (though not simultaneously) and being able to replace them with cash, a refrigerator that started smoking a couple days before Christmas last year, and countless trips where we just emptied the trash and put the mail on hold and were able to be gone with no worries. I think of paying rent as buying flexibility. Renting has lowered our stress levels in some very stressful times (potential job loss) because we can just buy ourselves out of our lease and be somewhere else in two months. It's just one less thing to think about/consider when making big decisions, like when my DH applied to graduate school.

Another tip: renting a small place (1 bedroom) really forces you to spend time with your new spouse. DH and I partially credit our small living space with learning to get along and co-exist in the same space happily. There's no escaping in an argument, you have to respect boundaries (like being quiet if spouse needs to sleep), and as a bonus, you don't feel the need to fill a space with furniture and other crap since you likely have enough 'stuff' for a small apartment already. Extra bonus is that in-laws don't visit when you don't really have room for visitors and people don't just 'drop by' an apartment or condo to see if you're home. :)

[kosh525]

Thanks everyone.  After a loooooong discussion with my future spouse, we are inclined to rent for a year and see what options are out there for us after the year.  She was more inclined to buy at first, but after seeing our situation, she realized we would be in a much better position in a year than we are today. We actually have begun to look at apartments and found a large 1 bedroom apartment that accepts pets for $1095, which would be less than what we were expecting our mortgage would be.

I am hoping to get both of the car loans paid off in the next year.  I am also going to continue my search for a permanent position with better pay.  This would put us in such a good position to purchase in the future.  I would really like housing prices and rates to stay where they are, but I can only go by what they are by the time we start looking again. 

[markbrynn]

I'm a little surprised by all the answers that kind of assume that you're going to buy at some point as if that's the right thing to do. There are some upsides to buying a house, but if I had a chance to go back to my younger self (40 now), I would tell myself not to buy a house. I've done it three times and 1) made a lot of money; 2) lost some money; 3) looking about even on the current one.

My reasons for renting/not buying:
1) If you're not sure whether you want to live in the same place (country/state/city/house) for most of your life, then you have a rather large cost every time you want to buy/sell a house. Much easier to move closer to a job if you're renting.

2) Extra costs on a house are so often ignored/forgotten. In most countries (I live in the Netherlands), you have property tax, insurance, water, sewage, etc. You are responsible for all maintenance (roofs, wiring, plumbing, carpets, gardening, painting). Over the course of several years, these can add up to a lot.

3) OP mentions that they found an apartment that would be less than their expected mortgage. That's before all the extra costs of owning. That sounds better than buying.

4) Very important, and with much personal experience, is space. Many people buy a nice big house with many rooms and a big garden/yard. I lived in Canada and the US while growing up in big houses with big yards. I have lived for years in the Netherlands (also Tokyo and Milan) in small apartments with balconies or tiny gardens (with a wife, kid and cat). I can tell you (in my case) that the size of the apartment/house had very little impact on my happiness. Extra space means extra cleaning, extra maintenance, space for extra stuff (that you don't need). It feels brilliant at first to have all the space, but why not live smaller and spend your time outside enjoying the world.

5) As mentioned on this blog (and others), buying a house is rarely a good investment (moneywise).

Just wanted to give a counter point on the "obvious" choice to buy a house.

[mpbaker22]

markbrynn -

Wonderful post.  I looked into buying, but I just can't justify it even with food costs being less from a garden and being able to rent out a 2nd room.  I'm always in the market in case a deal comes up, but it's hard to beat $320/month ($640 split two ways).  I do view it differently if I was getting married - my costs would double since I can no longer split rent with a non-relative.  That would lead me closer to buying, but I still might not pull the trigger.

[rubybeth]

I'm a little surprised by all the answers that kind of assume that you're going to buy at some point as if that's the right thing to do...As mentioned on this blog (and others), buying a house is rarely a good investment (moneywise).

Just wanted to give a counter point on the "obvious" choice to buy a house.

I'm glad you mentioned this, mark, because I feel like most Mustachians own their homes with no mortgage, or can easily pay off the mortgage if needed. I really do think that renting has been the better choice for us, because we are able to live so close to work and the university, with fairly low yearly rent increases, while not being locked in if something changes, which has reduced the stress in our lives or at least not increased it. We both like the *idea* of owning a house, but when there are 70 mph winds blowing rain directly into our bedroom via the edges of the window frame at 3am, as they were last night, we weren't thinking "oh crap, water damage, gotta figure out how to fix or hire someone to fix" or whatever, we were thinking "gotta let the apartment manager know about this."