What is Right for You? You have many decisions to make about your first housing choice. Remember the decision grid used in the lesson on using credit? If not, take a look at the decision-making process. A first step for your housing decision is to use the decision grid to analyze your housing options. Use the criteria you identified related to your space needs and lifestyle. When you have done that, you also need to analyze the financial pros and cons of renting versus buying. We've already noted that buying has some major financial benefits, based on the mortgage interest and property tax deductions, as well as the opportunity to build up equity. But, we also know that renting requires less initial money investment. So, which is better in the long run? Use the calculator to compare renting to buying, using the following data for Donnelle and Sean. For each set of data, start with the "Inputs" tab, and enter the correct numbers. Note that some of the categories in the calculator are underlined (i.e., "Appraised Value," "Savings Rate"). Be sure to click on those to go to an explanation of that item so that you will understand how this comparison of renting versus buying is calculated. Once your numbers are plugged in, go to the "Results" tab to see the comparison. Again, click on the underlined items there to read the full explanation. Write down the numbers (or print the results page), then go to the explanation tab for some final discussion of this calculation. Then answer the questions below.
Questions:
So What Do I Do Now? As you know, there are other things to consider regarding the financial pros and cons of renting and buying. You need to:
And, of course, in making a final decision, you need to consider the housing requirements you identified earlier - including space needs and lifestyle. Before you continue, make sure to review the pros and cons of home ownership. Now, let's help Sean make a decision, based on the information provided below. Use the decision-making grid to help Sean make a choice about housing. Be sure to include both financial criteria and lifestyle criteria in analyzing the options. About Sean: Sean is starting his first job and wants to move into a place of his own. He has found a 2-bedroom apartment within walking distance of work, where the rent is $800 per month; he would need to pay the first and last-month's rent ($1600) when he signs the lease. He has also found a 2-bedroom house in a neighborhood a little farther away from work. The house can be bought for $90,000, and he needs a down payment of $2,000. Monthly mortgage payments will be $900, including taxes and insurance. Sean has $3,000 in savings. He is making enough money to cover the monthly costs for the apartment or the house, but he really could use a new car, especially if he has to drive to work every day. Sean does not have any pets, works a full week (but no overtime), and enjoys working outdoors. He plans to stay with this job for about three years, then look for a job in another community (he's always wanted to live out in the mountain states). Use the calculator to figure out the financial benefits in the long run. Then use that information and other information to fill out criteria for the decision-making grid.
What would you recommend for Sean: rent the apartment or buy the house? Explain your answer. Conclusion: If you've read all the links in this lesson, you've learned a lot about housing choices! As you explore your own options for buying a home, you will need to learn more about the costs of home ownership, about how much you can afford, and about financing a home purchase. |