To buy or not to buy

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There are some rich graduates I know that bought a home right away. I know that is a smart idea. Is it possible I can afford to buy anything?

While you just made a huge investment in your education, buying a home can pay off even more, in stability, capital appreciation and family memories. You will be asking about home affordability throughout your life. Right now, the issue is not only the size of your paycheck, but your student loans. If you can swing it, most financial experts are in favor of buying a home, especially in today’s growing economy.

The American dream is alive, as seen by the increasing number of students enrolling and graduating from college. Each one hopes that their education will help secure a high-paying job enabling them to afford a home. The big question many ask is whether to buy or rent right out of college. We will look at the pros and cons of both scenarios.

The price difference between buying and renting is diminishing in many areas so a mortgage may cost the same as your monthly rent. Buying a property also gives you the security that renting cannot provide. Many choose to automate their mortgage payments, so you can have more confidence about your financial status.

You also get tax credits which can help offset the cost of buying your home, by deducting property expenses on your tax returns. Owning your own place gives you a lot more freedom when it comes to renovation, decoration, or interior and exterior construction, because you do not need your landlord’s permission. The added advantage is that your property will increase in value over the years if you keep it well maintained. After a number of years your mortgage will be paid off, while renting is an indefinite outlay of monthly payments.

Finally, you can generate income from your house by renting it out to other recent graduates, covering your mortgage payments and making a little on the side, if you can rent rooms separately. You will need advice from a real estate lawyer because local zoning regulates how many tenants can live in your home.

On the flip side, renting gives you more freedom to move or travel, because you may consider changing jobs. There is much more flexibility with a rental and most contracts will have a termination clause for early departure.

You do not have to spend anything on property or building maintenance as that is all covered by the landlord. You will not need any equity to rent, just sign the papers and have a few background checks to confirm that you will be a reliable tenant. There is also the peace of mind that if anything major happens to the building, such as a natural disaster, it is not your responsibility.

Whichever path you choose, make sure you are able to manage your finances, especially your student loan repayments. Some lenders will now allow you to convert your student debt into a mortgage so do your research.

A good home must be made, not bought… Joyce Maynard. 

Written by John Regan, former Director of Sales, for equity research.

 

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