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 Dear
Steve,
I recently graduated from college and have started a new job. It's now time for me to move out of the house. But I'm not sure if I should rent an apartment or try to buy a home of my own. People say it's a waste of money to rent. What are your thoughts?
-- Juliet
 Dear
Juliet,
You sound like a sensible and responsible young
lady. Kudos! But the big questions here are how
much debt do you have and will your career benefit
from being mobile in your early years -- i.e.,
being receptive to changing jobs or transferring
to other markets? Many employers, after all, expect
new hires to be more open to such changes than
their long-term people. Then there's this: Unless
you were on a full ride or had unusually generous
parents to subsidize your education, you probably
have some college debt that you may want to work
down before acquiring new debt.
Besides, many a young grad makes
the mistake of buying a house and digging into
a community only to discover that first job fresh
out of college doesn't suit their ideals -- and
that a much better one awaits them in another
town.
Suddenly, that new house morphs
from an American dream to an agonizing albatross
-- especially if the resale market is soft, as
it is now, and you have to move in a hurry. Sales
data consistently show that first-time buyers
are more transient than the rest of the home-buying
population and generally move within three years
after buying.
If you are really serious about
buying, you'll want to find a place where you'll
definitely want to remain for three to five years
so you can recoup your closing costs and start
gaining equity to buy your next house.
Regardless, let's run some cursory
numbers on buy versus rent. Say you'll spend $750
per month in rent, or $9,000 per year, for a decent
place in your first year out of the house (assuming
you've had enough of roommates for awhile.)
That's a lot of money just to retire
someone else's mortgage or apartment payment,
no doubt. So why not buy? Sure, you can get into
a house with virtually nothing down with an 80/20
loan, where you get two loans to finance the house.
However, that second loan is usually a balloon
loan that's payable in full in a relatively short
time. That and the other no-down-payment or low-down-payment
programs out there can dig you deep holes when
their true costs start to weigh you down in the
years to come.
To fully answer the question whether
you should buy now depends on so many factors
unseen here, such as your credit rating, your
credit-card debt, college debt, car payments and
other factors, such as your savings ethic. I'd
suggest you also try Bankrate's buy
vs. rent interactive tool to aid in your decision.
If your folks will have you, I'd suggest you stick around
another year or so to fully test the employment-
and housing-market waters. Offer them a nominal
amount of "rent" (say, $200 per month),
which should delight them, assuming you're on
good terms and help out around the place occasionally.
Then "pay" the rest of what you would
have spent ($500 to $600 a month) on real-world
rent into a savings account and you'll have that
$5,000 down payment in no time, just in case you
want to buy.
Good luck in your decision and your career!
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