This is a guest post from MD of Studenomics, a blog for twenty-somethings who want to make more money, have more fun, and get the most out of their savings. Don’t by shy, stop by and consider subscribing.
You graduated from college a little while ago, finally found that first lucrative job, and now it’s time to get out of your parent’s house. Congratulations! Before you pack up your clothes, books, and collection of DVDs, and wave goodbye to your parents and their additional cleaning, cooking, and laundry services, consider the following.
Your credit score
Have you checked your credit score lately?
Your credit score determines whether you’ll be a trustworthy tenant. Pretty much every landlord these days will run a credit check on you to see where your credit score stands. A low credit score can interfere in you getting that basement apartment just outside of the city. Don’t let past decisions dictate where you’ll live in the future.
Your credit score also dictates whether you can qualify for a home mortgage. The lower your credit score, the higher of a risk you become to the bank. If the bank thinks you’re a risky customer, they may charge you a high interest rate, ask for a large mortgage down-payment, or not even give you the mortgage at all. After the credit crunch, this is more likely than ever.
Check where your credit score stands before you decide you to move out.
Your money in savings
How much money do you really have saved up? Will you have to dig into your retirement savings or emergency fund to cover moving costs? If you plan on renting a place to live, do you have enough money to cover a few months of rent if anything were to happen? If you plan on buying a house, do you have more money saved beyond the “down-payment” money?
Where do you want to live?
Your location will dictate how much money you need to have available. If you decide that a condo downtown is the best fit for your lifestyle, then decide to save a lot of money. Moving out in general is costly, but where you decide to live will determine how much money you will need for the day you decide to take the big leap.
The reason behind the decision
Are you moving out because you’re getting married? Are you moving out for a new job? Or are you simply moving out to improve your social life? One of those reasons may not be worth the cost.
Classic view on renting
Let’s challenge the idea that paying rent is throwing money away. You’re not throwing away money by renting! You’re paying for shelter, a roof over your head, a place to sleep, and a place to bathe. If you feel that paying money for a place to live in is “paying the mortgage for someone” then you should stay at home for as long as you can.
I’m not trying to say that renting is better than owning. The decision to rent or own a home should be a conclusion you come to on your own after extensive research and considering all of the factors. Just please shift away from the “throwing money” away mindset and look at all of the costs involved.
How stable is your income?
Sure, you could be earning a decent income today, but how stable is this income? Will you have this job in one year from now? Will you want to switch jobs in the near future? A friend of mine almost purchased a condo downtown a few months ago. He had everything taken care of except for one thing: his job could send him anywhere in the world. It’s a good thing he didn’t purchase the condo because he will be leaving town next year.
The costs involved in owning a home
Are you aware of all of the real estate fees you’ll have to deal with when you own your own home? The costs of home ownership go far past a down payment. Are you ready to pay for homeowners insurance, land transfer fees, moving costs, closing costs and lawyer fees, and the supplies and resources needed to maintain a decent home?
Many of my older friends who purchased a home immediately after graduating college tell me they absolutely regret it. They say home ownership reduces their flexibility and their finances were always tight due to the never-ending home ownership expenses.
If you think buying a home is better than renting, you must ask yourself this: Am I buying the home for the right reasons? I find that most people want to be “home owners” because of information that has been indoctrinated in us since we were little kids. It’s 2010 now. Certain “conventional wisdom” is no longer relevant and the home ownership debate has drastically changed.
Living on your own may be a solitary endeavor, but there’s lots of help available on the internet. Do your research before you make what is one of the biggest decisions of your twenties.
Photo: Seton Hall University