Homeownership has long been viewed as one of life’s major milestones that most people aim to achieve. As millennials reach the age that previous generations have purchased homes, should they follow suit? Millennials are faced with significantly different financial circumstances in comparison to generations gone by. This has a huge bearing on the ability of millennials to buy a property. With this in mind, should millennials rent or buy? Global statistics indicate that in developed countries one in three millennials under the age of 35 are homeowners. However, millennials are less likely to be homeowners as compared to Gen X or baby boomers were at the same point in their lives.
Why are millennials renting?
- Nearly all millennials would prefer to be homeowners, yet so many are still renting. Here are some of the reasons why millennials are not buying homes at the same rate as other generations.
- To start with, most millennials simply can’t save enough for a home down payment. Besides this, most millennials are not in a financial position to meet their monthly mortgage payments.
- Secondly, the majority of millennials have high-interest-debt that prevents them from putting money away for a substantial down payment.
- Lastly, median home prices are rising faster than most millennials earn. As such, it is increasingly difficult for millennials to not only save but also afford mortgage payments.
Is renting smarter than buying?
Buying a home is a huge lifetime goal that nearly everyone would love to achieve. After all, everyone wants a place of their own to call home. While most millennials would opt to buy a home, what is the smarter decision – buying or renting? There are several reasons that impact whether to buy or rent. Here are a few considerations when deciding if to rent or buy a home.
How much flexibility do you need?
Firstly, you need to understand that buying a property is a long-term financial commitment. As such, you are tied to an area for a considerable period of time. With this in mind, consider if you are planning on staying I area for a long period of time or if you are going to move in the near future. If you want the flexibility to make huge lifestyles changes without being tied down then renting is more conducive for you. Renting makes it easy to pack up and move without much hustle. However, if you have no intention of leaving an area and would like to put down your roots there then buying a home might be a better option for you.
How long will you own the property?
There are significantly huge costs and fees that are associated with either buying or selling a home. For example, the closing costs for selling a home can add 3% – 6% to the cost of buying a home on top of the down payment you need to pay. Likewise, when you are selling a home you will pay real estate commission typically 5% – 6% of the sales price on top of the cost of getting your home ready for sale. However, the longer you own the property the more you can spread the fees and costs over an extended period of time. There are various rent versus buy calculators that you can use to decide whether to buy or rent.
Can you afford the various costs?
You need to asses whether you can afford maintenance costs, property tax and insurance. This is due to the fact that the costs of homeownership go beyond making mortgage payments. With this in mind, as you decide whether to rent or buy you need to understand if you can afford property tax payments and insurance. These costs can put a financial strain on you is you are not prepared to deal with them.
Do you have sufficient savings?
To buy a house you will need a massive cash outlay that can deplete your savings. Spending all your savings can be quite scary and unsettling. As such, ask yourself if you can afford to buy a home and still remain with sufficient savings to cover other financial obligations. If buying a home means you completely exhaust your savings then you might reassess your position and continue renting until you can afford to buy.