More millennials are moving into the real estate market. About 65 percent of people ages 25 to 34 years old surveyed by Realtor.com in mid-June said they plan to buy in the next three months.
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Is it better to rent or buy a home?
But buying is not always the best option. When deciding one of the biggest financial decisions of your life, keep these things in mind to see if you're better off buying or renting.
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Here's where it makes sense to rent:
You have limited funds. If you don't have the money for a down payment and additional costs of owning a home, renting is the best option. Use rent-versus-buy calculators at Trulia or Bankrate.com to see what you can afford.
You are uncertain about your employment. If you are unsure about your job situation or living paycheck to paycheck, focus on conserving cash for future living expenses and building up your emergency fund, said Evelyn Zohlen, a certified financial planner and president of Inspired Financial in Huntington Beach, California.
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Buying Or Renting A Home In Switzerland
You have a short-term time horizon. If you are on a work assignment that lasts two years or less, it makes more sense to rent rather than taking on the high transaction costs of purchasing a home. Same goes if you plan to move in the next couple of years or want to start a family in a few years. On a similar note, if you are going through a significant life transition, like divorce or loss of a spouse, renting is a better idea while you get a little better footing.
But you are better off buying if:
You can cover the additional costs of owning. Make sure you can pay the down payment and closing costs before buying a home. 'Most banks still want a 20 percent down payment,' said Ryan Severino, a senior economist and director of research at commercial real estate data provider REIS. So if you are purchasing a $250,000 home, a 20 percent down payment would be $50,000. That's in addition to a typical 5 to 6 percent in commissions plus another 1 percent in closing costs. Maintenance costs are also a big factor to budget for.
Read MoreBoost your paycheck, millennials
You plan to stay in the home at least five years. It's best to buy when you have the 'long-term horizon,' Zohlen said. Staying in a house that you buy for five years or more means you are more likely to recoup what you paid in transaction costs and generate a return on your investment.
You want to reap the financial benefits of homeownership. Low interest rates make homeownership attractive because it decreases the amount borrowers pay on their loans. Mortgage rates remain near record lows after the 2008 financial crisis. The average rate on a 30-year fixed-rate mortgage is 3.9 percent, according to Bankrate. If you itemize your federal return and don't qualify for the alternative minimum tax, you can deduct your mortgage interest and property taxes from your tax obligations. And most importantly, you can build equity in your home, something that isn't possible with a rent payment.
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How much more it costs to own vs. rent in your state
Owning a home is often considered the American dream — and it's an expensive one. Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis.
Perk every level new vegas. But many homeowners reap benefits that you can't get from renting, such as financial security and stability, tax deductions and a vehicle for retirement savings. With each mortgage payment, you get closer to fully owning the home. The equity you build can be leveraged for loans like cash-out refinances, home equity loans and lines of credit that can be used to improve the home and boost its value or be used in financial emergencies.
While renting can't offer those long-term financial benefits, it's cheaper to rent on a month-to-month basis, the analysis found. If you're wondering how to save money for a down payment, renting can help you build that nest egg — but in extremely expensive or competitive markets, renting might be better for the long haul. If you're considering buying, before entering the market, use a mortgage calculator to estimate the costs and compare mortgage rates to find the best deal.
To determine the monthly homeownership premium — the additional cost of owning instead of renting, expressed as a percentage — NerdWallet compared 2015 American Community Survey data from the U.S. Census Bureau for the median gross rent and median homeownership cost in each state and Washington, D.C. Median gross rent includes the costs of monthly rent and utilities for all kinds of rental properties, and median homeownership cost includes monthly mortgage payments, real estate taxes, insurance and utilities.
This comparison doesn't include the down payment required to buy a home, which is traditionally 20% of the home price for conventional mortgages, but is lower for FHA or VA loans.
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Hover over a state to see the median monthly homeownership premium — the additional cost of owning instead of renting, expressed as a percentage.
Emily Starbuck Crone is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @emstarbuck. Dan Tonkovich is a data analyst at NerdWallet. Email: [email protected].
Methodology
NerdWallet analyzed one year of data from the U.S. Census Bureau's American Community Survey from 2015, the most-recent data available. To determine the homeownership premium, we used the median gross rent for all rental properties and the median homeownership cost for all states and Washington, D.C., to determine a percentage that shows the added cost, as a premium, that people pay each month to own a home.
The article How Much More It Costs to Own vs. Rent in Your State originally appeared on NerdWallet.
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Millennials are making a big mistake by not owning their homes, says one financial expert
Millennials are making a big mistake by not owning their homes, says one financial expert
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