The dilemma over whether to rent a home or buy one entails lengthy evaluations of your financial status, lifestyle, family plans and handyman abilities.
Homeownership is seen as the “American dream,” and it’s becoming just that for a growing number of millennials who are saddled with student debt and lack confidence in the housing market after the bust.
The Great Recession and the cost of housing has created an age gap among homeowners that is wider than ever.
However, while national reports indicate that young Americans are leaning more toward renting than buying, an analysis by NerdWallet finds that’s not necessarily true.
Research showed that a majority of millennials would prefer owning to renting, but they appear to be postponing homeownership because of real and perceived difficulties in affordability.
“There’s a strong indication that millennials (born from 1982-2000) do want to become homeowners, which is quite different from what we’ve heard,” Chris Ling, mortgage manager at NerdWallet, said of the study.
Dwayne Patterson, eealtor with ReMax Prestige Properties in Kingman, said he sells plenty of homes to buyers under 40 years old.
“I think, because of Kingman’s location and climate, we do get a lot of retirees coming from California,” he said. “But a lot of younger folks are buying too. It’s a good balance. You get a lot of people who want the privacy and the investment.”
Crunch the numbers
The first step toward taking the homeownership plunge is financial considerations.
Home buyers typically have to come up with a 20 percent down payment on the cost of a home. Lenders want to see that they have “skin in the game.” In the Kingman area, home prices range from about $50,000 for an existing manufactured home in areas such as Butler, Golden Valley and Dolan Springs to upwards of $350,000 for new homes in upscale subdivisions such as Hualapai Foothill Estates.
The sweet spot is around $120,000 for an average two- or three-bedroom home in Kingman.
“It does appear that home prices are creeping up enough to price some people out of the market,” said Brenda Goodman of Realty Executives. “The best advice I can give anyone is to start a dedicated savings plan to get a good down payment and keep up on their credit, making sure they have no late payments or other blemishes on their credit report.”
Some banks will make loans with down payments as low as 3 percent for first-time home buyers backed by Freddie Mac and Fanny Mae. The VA offers zero-down financing for qualified veterans. You might also hit up friends and family for help with a down payment.
Then there’s the monthly mortgage, which is calculated over the life of the loan and includes principal balance payment, interest, mortgage insurance and property taxes.
Now factor in the occasional broken water line, the water heater that needs to be replaced, a leaky roof, running toilet and the usual home maintenance bills.
On second thought, that $600 apartment doesn’t look so bad, even though you might have to put up with trashy, noisy neighbors.
Or if you want to avoid those headaches, and you need a fenced yard for your kids and pets, single-family homes in decent neighborhoods are renting for around $750 a month in Kingman.
According to Zillow, total cost of homeownership for a $136,200 home in Kingman after three years would be $72,821. Total cost to rent would be $40,228 over that period, leaving $32,593 in your pocket, counting the money you didn’t spend on a down payment.
After three years, if you buy your home will have $54,404 in equity, or the amount you’d make if you sold the home.
However, if you rent and invest your savings for a return of 6 percent, you’d earn about $5,088 in three years.
Bottom line, looking at gross costs, equity and investment potential, Zillow says it’s better to buy than rent if you plan to live in the home for more than two years and seven months.
“I recently sold a house to a couple of millennials with two daughters who had been renting in Golden Valley and the wife very much wanted to buy a home,” ReMax Realtor Mike Wagner said. “She was tired of throwing away money in rent. You kiss your money away every month.”
Wagner said it’s interesting that rents have been steadily climbing in Kingman over the last four to five years. Homes that were renting for $800 a month are now pushing $1,000, he said.
Owning a home is going to take away time and money from the extracurricular activities you may have enjoyed as a renter.
You’ll be devoting weekends to pulling weeds, cleaning gutters, fixing broken windows, nailing down roof shingles, replacing air conditioner filters. It’s a never-ending list of things to do.
You’ll have to make decisions about where you want to live, what school you want your kids to attend, the nearest park, and traffic in the neighborhood. Because unlike renting, it’s not as easy to pull up stakes and leave.
Of course, when it’s all said and done, you’ll be gratified with “pride of ownership” and taking care of what’s probably your biggest financial investment in life.