When thinking of buying a home, some people spend hours analyzing the economic benefits of buying vs. renting on spreadsheets. Neil Irwin, senior economics correspondent for the New York Times, admits to doing this himself.
“But the result, no matter how carefully and clearheadedly you approach the exercise” he writes, “is more a starting point than a conclusion about your optimal living situation.”
Indeed, there are many things to consider that don’t easily translate to a spreadsheet. In addition to doing the math, Irwin suggests potential homebuyers ask themselves 5 questions:
How much is permanence worth to you?: A home gives you stability and control. Your mortgage payments remain steady over time, you can make any renovations you’d like to your property, and you will always have a place to hang your hat. “So what is that worth to you?” asks Irwin.
How confident are you that you will want to stay?: Due to the costs involved in buying a home, the investment pays off better if you plan to stay for at least 10 years. “What are the odds,” says Irwin, “that a year from now you will get offered a dream job in London, or meet the love of you life who already has a great place…?” Your desire to stay put should figure into the decision.
How confident are you about your future income?: If you rent an apartment and then face a sudden pay cut or job loss, it’s relatively easy to adjust by finding a new living situation. Not so simple if you’re saddled with a mortgage. Think conservatively about future income.
Can you force yourself to save?: Buying a home is like starting your own savings account. As you pay off your mortgage, equity accumulates, and with any luck, you’ll find yourself sitting on a nice nest egg in time. If you rent, it takes great discipline to put aside similar funds for the future. Factor your ability to save into the equation.
Can you accept that the future is unknowable?: Despite all the above questions, inevitably situations change, and buying a home requires a certain leap of faith. Advises Irwin: “concentrate on the things you can know about the finances of a potential purchase and your own personality and leap accordingly.”