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Should We Rent or Buy? Tips for Couples on the Move

April 18, 2011 | Apartment Hunting, Apartment Hunting Advice

The question of whether to rent or buy your home is a complex one. On The Shared Wall, we’ve walked you through in detail the many factors that should play into your thinking when making this big decision—but with spring in the air and wedding season on the horizon, we wanted to hone in on some special considerations that couples should think about.

First, anyone considering buying a home needs to think about the short-term financial implications. You need to ask yourself if you will be cash-flow positive after covering all the expenses associated with home ownership. These expenses may include mortgage, taxes, insurance, maintenance and repairs, supplemental insurance, home improvements, decorating, utilities, and association fees.  A general rule-of-thumb is to spend no more than 30% of your income on your housing.

For couples, it is easy to fall into the trap of thinking that if you have two incomes you can spend 30% of your combined income on housing. Here’s where we see a big opportunity for couples to prepare for their future together: Pretend one of your incomes does not exist. By spending no more than 30% of only one income (usually the higher one), you can put away money from the second income in an emergency fund. Then, if there is an unexpected drop in cash flow from job loss or health problems, you’ll be prepared to weather the storm until your situation improves.

Next, you’ll need to think about the long-term financial implications of renting versus owning. The traditional wisdom held that you should have 3-6 months’ worth of expenses set aside in a savings account at all times. These days, with the economy the way that it is, we recommend having a cushion of 6-9 months, if at all possible. Between wedding expenses, moving expenses and a down payment, it is easy to see how a newlywed’s nest-egg could be wiped out. If putting down a payment on a house means putting yourself on shaking financial footing, you should consider delaying that purchase until you can build back your financial reserves.

Lastly, lifestyle choices should play a big role in determining if you rent or buy. As a singleton, you probably only had yourself to think about in terms of how you lived your daily life. Now, if one of you gets a job transfer, the other person is affected, too. If one of you loves the quiet suburbs while the other can’t resist city living, you’ll need to find some geographic common ground that could have housing affordability implications.

The most important tip we can give you when making this very important decision is to communicate clearly, honestly and often about your needs and wants. Then, use that information as the basis for putting together a sound financial plan that contemplates both the things for which you can plan and some cushion for things you don’t expect.

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