Q: I've just graduated from graduate school with a degree in computer science. I've taken a job and am wondering whether I should rent or buy my first home. The thing is, I've been renting for so long that I really want to own something. The problem is that I'm not sure I'll stay in this town for all that long. It's possible that in two to three years, I'll be transferred elsewhere with this company, or I'll leave to move to a different company. It's likely I won't be in this town for the rest of my life. You should know that I'm debt-free. I don't have any school loans, car loans or credit card debt. I'm just wondering if I should buy a house because interest rates are so low or if I should rent until I have a better sense of what's going on with my professional career. What do you think?
A: First, the fact that you're debt-free is fantastic, especially considering you're just out of graduate school. Congratulations, because that is a huge accomplishment.
I understand that you've been renting for years. And now that you have the security of a full-time job, buying a home seems to make some sense.
While it's great to be able to buy a home, you have to be ready for it financially and emotionally. And, given the current state of the housing market, it would be very difficult to buy something if you don't know where you're going to want to live for the next five to seven years.
At this stage of your life, you should think first about your career and what it takes to get ahead. If you think it's likely that you're going to move in the next two to three years, I can't really recommend that you buy a house. Even if housing prices don't decline further (as many economists believe they will), the cost of selling a property can be as much as 10 percent of the sales price.
To break even, your home would have to appreciate 5 to 10 percent over the next couple of years, and I think that's unlikely. It could happen, but it's more likely that you'd have to move, which presents the probability that you would not recover all of the money you put into the purchase.
The only way buying could work is to buy a house that's really inexpensive (but still in a good neighborhood) and then fix it up. Even so, this isn't as easy as it sounds and it would take a lot of time and effort. But if you have a hankering to own, and you know your window of opportunity is only two to three years, this would be your best route.
Finally, you should compare what you would rent with what you would buy and then decide which choice would be better for you from a financial perspective. You may find that renting for the next year or two might be cheaper than buying a home. When you buy the home, you not only have the monthly costs of homeownership but also the upfront costs of buying the home.
Ilyce R. Glink's latest book is "Buy, Close, Move In!" Distrobuted by Tribune Media Services, Inc.
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