Purchasing a home can be a costly and frightening experience. It’s likely the most expensive purchase most adults will ever make. The process is constantly changing, and potential pitfalls seem to lurk around every corner. So much so, in fact, that fewer people are buying homes.

According to the Pew Research Center, “A decade after the housing bust upended the lives of millions of Americans, more U.S. households are headed by renters than at any point since at least 1965, according to a Pew Research Center analysis of Census Bureau housing data.”

Millennials, in particular, seem to be a generation of renters. Less than 35% of Millennials own homes, mainly because they can’t find affordable options.

Nonetheless, buying a house still feels like a rite of passage into adulthood. So for those, especially Millennials, who are waiting to buy a home until they are financially equipped, it can feel like delaying a major life event. They continue to rent but have to ask the question: when is it time to buy? Is it better to rent or buy? The biblical principles of stewardship can help one navigate these murky, often overwhelming, waters. There are also some practical guidelines to follow when answering the question of renting vs. buying.

Wasting Money vs. Investing

The biggest financial argument to buy a house is because it’s an investment, whereas renting seems like you’re just “throwing money away”. It’s true, that many houses are good investments and will make you money when you resell.

However, not all houses are good investments. Furthermore, if you buy above your means, you’ll lose money in the long run. Overspending at the grocery store because you have a coupon is still overspending. More than any other type of investment, buying a house requires a significant amount of money, time, and energy. If you’re not ready or equipped for the investment, then you should continue to rent.

For the sake of argument, having a roof over your head, a place to sleep, eat, and work is not “throwing away money”. Shelter is a necessary part of life!

Before You Buy…

In order to assess if you’re ready to buy a house, you need to have a budget. You should consider this an essential step before moving any further in the purchasing process.

Remember the severity of the decision you’re making and overcome your wants or desire for a picture-perfect house. Don’t let yourself get caught in the comparison trap. Seek wisdom from Scripture, use the following guidelines, and answer the following questions before making any decisions.

Guidelines

Generally, no more than 40% of your Net Spendable Income should be allocated to housing. Your Net Spendable Income (NSI) is income after tithes and taxes are deducted. This includes house payments or rent, taxes, utilities, repairs and maintenance, and telephone. Remember to calculate insurance, taxes, utilities, and other fees (like HOA) into your monthly estimation, not just the estimated cost of the mortgage.

If you make $80,000 a year, your NSI may be around $60,760, so you could allocate about $24,304 a year to your housing costs. Each month, that comes to $2,025.

In order to buy a house, be certain to pay at least 20% of the purchase price as a down payment on the house. This will allow you to avoid PMI (Private Mortgage Insurance) and save you thousands of dollars in interest costs over the life of your loan. It will also help you qualify for a lower interest rate and shave years off your loan. A .25% difference in an interest rate may not seem like much, but over 15-30 years, it’s thousands of dollars!

In addition to the 20% down payment, plan on paying 3-5% of the purchase price in closing costs. This means, in total, you’ll be writing a check for somewhere between 20-25% of the purchase price of the home. For a $200,000 home, you’ll pay at least $40,000-$50,000 upfront. That’s a significant amount of money to pay out of pocket, and no small savings goal.

Once you have saved your down payment and paid closing costs, you should ideally still have 3-6 months’ of living expenses in your savings account. This may seem excessive, but it is more than necessary. It takes a lot of money to furnish and maintain a house. By having a healthy savings account, you’ll be able to take care of the house and any other expenses that arise without having to rely on a credit card. Be patient to save so you can make a wise decision!

Questions

The guidelines above should give you a good idea of how long it will take to save up to a buy a house, but the following questions are also crucial to answer when making this decision.

• Is my job stable enough to make mortgage payments?
• Will I still have enough financial margin to make mortgage payments and cover all other associated costs with a mortgage (ie maintenance, repairs, landscaping, decorating, heating/cooling/water)?
• Do I plan on being here more than 5 years?
• What is the economic outlook for the area (for this information, ask real estate agents, business people, the Chamber of Commerce, and so on)?
• What is the cost of living in the area?
• What is the rate of real estate appreciation or depreciation in the area? Or at what rate are prices and rents expected to increase or decrease in the area over the next several years?

If the answers to these questions are all positive and you can follow the guidelines above, it may be in your best interest to buy! One last step is to calculate the overall costs of renting and compare to the overall costs of buying. If renting is more than buying, certainly make savings goals and pursue the purchase of a home.

Don’t forget to ask for help and advice! Proverbs 15:22 says, “Plans fail for lack of counsel, but with many advisers they succeed.” Seek the wisdom and experience of others who have gone before you. It’s a big decision and should be taken seriously!

And if you decide to buy, be sure to read this blog to understand everything you need to know about mortgages.