Does It Make Sense to Buy Your First Home While You're in the Military?
Dear Carrie: I'm one year into my four-year contract with the Army. I currently live off base but hate wasting my money on rent. I'm thinking about buying, especially since interest rates are so low and real estate prices just keep climbing. I don't have much cash, but I don't need a down payment for a Veterans Affairs loan. I figure if I stay in the Army and have to move, I can either sell or rent it out. My dad is all in favor of buying now, but my mom says I should wait until I leave the military. What do you think? -- A Reader
Dear Reader: As the different opinions in your family demonstrate, buying a home versus renting is often a tough decision -- and especially complicated for someone like you who may be forced to move without much notice. A Veterans Affairs loan can certainly help with the purchase, but there's a lot more to consider as you look to the future.
Is Renting a Waste of Money?
First, let me say that I don't believe renting is always a waste of money. In fact, depending on the circumstances, renting can be cheaper and more practical than owning a home.
Renting can make a lot of sense if you're not going to be in the same place for at least five to seven years. If you stay in a home for many years, the substantial upfront costs of buying a home are spread out over a long time. Not so if you're forced to move soon. Plus, as we saw during the Great Recession 10 years ago, homes don't always appreciate in value, and you wouldn't want to be forced to sell in a downturn.
Renting can also make sense if you don't have ample cash reserves. As a renter, you can call the landlord if something breaks. When you own, you are the landlord, and you're on the hook for all the costs of maintaining and repairing the property. On the flip side, when you buy a home, you have the ability to build equity. But this takes time, sometimes many years.
A good exercise is to use an online calculator to estimate the costs of renting vs. owning. A lot depends on your location. In some areas, there's a big difference; in others, not so much. Just be sure to gather your information and do a careful analysis before you decide.
Consider Total Costs and Affordability
The cost of owning a home involves a lot more than the purchase price. In addition to paying your mortgage, you'll also have to pay for property taxes, property insurance, maintenance and repair costs, utilities and possibly HOA fees.
And there are closing costs associated with buying a home. These are one-time expenses and fees -- including appraisals, title insurance, attorney's fees and more -- which, according to Realtor.com, can run as high as 5% to 6% of the purchase price.