I admit, I really haven’t been following the new tax proposal as much as I should, but I have heard that it might not be as beneficial to own a home if the new proposal goes through. My son, who hasn’t even graduated from college yet (but who will have a very good job when he graduates), is thinking he wants to buy a home ASAP.
I think even without the tax situation, he should rent and “live a little” before he buys a home.
Curious what other people think about either of these issues.
Non-tax considerations about renting versus buying a home include whether he prefers a greater ability to move to a different location versus a greater ability to modify the home to his preferences.
I bought a house pretty quickly out of undergrad. It worked because I knew exactly where I wanted to move to and I had an offer that necessitated me staying put for at least 5-7 years.
With that said, I don’t think the tax bill should affect whether or not he buys a house. There are so many factors that go into buying one that the tax thing seems relatively minor.
I went through a first time homebuyers thing that gave me some benefit or another. Not sure if it’s still around.
Here’s a good calculator: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html. However, it assumes you’ll be able to itemize.
Thanks all. I am happy he’s “fiscally conservative” and is eager to take on adult responsibilities, but I don’t think he has a clue what he’d be getting himself into. I’m not saying “no” outright - I’m hoping he will come to that decision on his own, or will at least give it a lot of thought. He won’t have enough money right away, so we have a little while to worry about this.
Our 25 year old just qualified for a mortgage and bought a small house. His mortgage payment is lower than his rent was and I am thrilled. He was contemplating a 15 year mortgage but I told him to do a 30 so he would have more cash to do things to it he wants to. He can make extra principle payments if he feels flush. He got a great price and it appraised for more than he paid so he already has a strong equity position.
I think it depends on the region, for example, in a really hot market area, I would likely suggest they wait for the next dip.
I agree with somemom. I depends on the region. Based on the region and how long he plans on staying at the house, he may even want to consider interest only loan vs fully amortizing loan.
Depending on where one lives, @romanigypsyeyes, the “tax thing” is anything BUT minor. It can be a major part of deciding whether buying a house is a prudent decision. I would advise taking it slow.
The “tax thing” in the tax proposal only affects mortgages over 750k. The vast majority of homebuyers aren’t getting a mortgage anywhere near that.
And the vast majority of young people aren’t paying anywhere near 10k in SALT.
So sure, if he’s in that top 1% of first home buyers, it’s a different discussion. I was assuming someone not, y’know, to buy an extremely expensive house right out of undergrad.
He would be buying in the D.C. Area, and he CERTAINLY won’t be paying 750k. He would get a small place and rent rooms. In a year or 2 he’s still doing well and has saved more money, then I would say it could be a smart decision.
But for an entry level house, I question whether the new buyer will find it worth itemizing. For a single person, maybe. For a young married couple, I’m skeptical. Can they really get over 24K in interest + 10K SALT? I still recommend wait & see.
Financially, it might make more sense to buy. From a non-financial perspective, a young single guy might enjoy living in an area with nightlife within walking distance and other 20-something professionals, even if he has to stretch on rent. Then get the house in the suburbs after he’s more ready to settle down.
My oldest has spent well over $100,000 in rent since graduating from college. I would love to see him buy something. I would have loved if he would have bought something 4 years ago when he was 25. But then a huge part of my H and my portfolio is property and houses so we’ve very comfortable with the ups and downs of buying and selling and when you’re young you have a lifetime to add value to your asset columns utilizing property.
What is the market? Do you know the area well enough to make an informed choice on location? How long do you plan to be in the area? Willing to take in roommates to cut costs? Can you do a 15 year vs 30 mortgage?
How expensive are rentals?
For someone straight out of school my advice would be to rent until you’ve “settled” into an area. Renting has the perks of easy move without getting caught in a down market. After a bit in an area you’ll know what are the desirable areas and pros and cons. Then you can find a place and maybe get roommates paying rent to help with that mortgage if needed.
My D just bought a house, and being able to deduct interest on her taxes was not a consideration in the decision. She wanted to stop throwing away her money on rent. She plans to stay in the area, and she bought in a good school district. It made sense to her.
My older D wants to buy next year but also has an itch to someday leave this area. My advice to her is to look for a fixer upper where she can do some of the cosmetic work herself, with her bf or friends.
Then she has a reasonable flip option, some appreciation. Otherwise, she could pay X for move-in ready and the market might later limit her or she could be left underwater when she wants out.
Unless she had the money to buy the house outright, she traded renting the place to live for renting the money (mortgage interest).
If he can afford to buy for a reasonable price not at the top of the market, it might be a better choice than renting. Our son bought his house right after he graduated. Now 6 year later his house almost doubled in price. But we are in CA where you can’t buy anything desirable under the new 750k guideline.
It takes a large chunk of change and a lot of energy to do a real estate “round trip.” Very few young folks stay put in one job long enough to make this profitable. A house you live in is not a cash machine or investment vehicle… while financially aspects need to be consistent, they should not be the primary driver of that decision.