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By Erienne Andvik
MoneyMix Contributor  

One of the most exciting things about joining the so-called real world is getting a place of your own. There are tons of choices you get to make--will you live with room mates?  What part of the country will you live?  Do you need 24/7 access to a good takeout restaurant, or do you prefer lots of green space? 

The most important decision you will have to make is whether to rent or buy a place.  There's no litmus test to tell you whether renting or buying makes the most sense for you. So you'll need to take a close look at your personal financial situation and your long range plans before making any decisions.

benefits of renting

Renting is how a lot of us start out--and there are plenty of advantages. Alli Saari, 23, Minneapolis, Minn., lived at home for a year after she graduated from college to save money and take her time deciding what kind of living was right for her. 

"Freedom is one of the biggest reasons I think young people choose to rent," says Saari.  "Many recent grads don't have a clearly identified career path in mind.  When you rent, you can pick up and move."  You can choose your lease terms and once your lease is up, you're off the hook.

Many apartment or rental properties offer additional amenities you couldn't afford if you were buying a place of your own.

Another reason Saari chose to rent?  Location.  Saari did her research and was able to rent an apartment in the neighborhood where she wanted to live, couldn't afford to buy a place in the same neighborhood.  "Location is key at this time of your life," says Saari.   

Another advantage of renting your digs-maintenance or repair work is done by your landlord or management company-meaning the tenant isn't responsible for making repairs when the heater stops working at 3 a.m. This is good for two reasons: you aren't paying for costly repairs, and contacting your landlord is often the only work you'll have to do.   

Many apartment or rental properties offer additional amenities you couldn't afford if you were buying a place. Perks like a common-party room, a pool, and a workout facility are just some of the amenities found in some rentals you'd likely have to forgo if you're looking to buy a place. 

"I feel like there's a sense of community in an apartment building," says Saari.  It's a great way to meet people, especially if you choose a building with a lot of people close to your age. 

And finally--monthly cost.  When renting an apartment, your monthly costs are fixed, and are usually lower than buying.  Renters usually pay rent, utilities, and renter's insurance for the lease term, and the management company--not you--will have to absorb unexpected costs. Of course, your rent can still go up once your lease is up for renewal.  

benefits of buying

Chances are buying a place of your own is on your radar for sometime in the future, but how do you decide if buying is right for you now? Meredith Persha, 24, St. Louis Park, Minn., lived in an apartment for a year out of school, but after she got her first raise, her rent increased and she decided it was time to start looking into buying a place of her own. 

"I had a sizeable down payment from investments I made as a kid.  This lowered my monthly mortgage payment so it was actually cheaper to buy than to continue to rent," says Persha.   

Before you even consider buying your own place- ask yourself these questions:

  • Have I been in a job I like for at least a year?
  • Do I have a stable income?
  • Do I know where I want to live for the next 3-5 years? 

If you answered yes to these questions, you are ready to start looking into buying. Why? Because having a stable income from a job you like and are ready to settle in one place for a few years means you're ready.

Karen Introcaso, Vice President of Lending and Operations of Spectrum Federal Credit Union in San Francisco says you need to have a stable lifestyle before considering buying.  "Make sure your feet are planted in a good job in the city you want to live," she says.

A big benefit of buying?  Recouping some of the money you've paid toward your mortgage.  How it works: A mortgage payment has two major components-paying back the money you borrowed (the principal), and the interest you pay in order to borrow money from a financial institution.  The interest is a sunk cost that you can't get back, but if you sell your place-hopefully for as much or more as you paid for it-you'll get your principal back. 

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Published February 10, 2009

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