After the ‘I Dos’: Should Newlyweds Rent or Buy?

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Couple In Front of Dream House Here’s a post from our friends at Trulia:

Wedding season is upon us, which means that after the “I Dos,” newlywed couples are going to be facing the question of “when are you two going to buy a house and start having kids?” Everyone expects couples to follow the standard plan of get engaged, plan a wedding, get married and then buy a house and start a family–but newlyweds must make the best decisions for them, not cave to family and peer pressure.

The great news is that when it comes to home affordability, newlyweds in 2012 are better positioned in the current market than any other newly-married couple in the last decade, and Trulia’s latest Rent vs Buy index found that it was cheaper to buy in 98 out of 100 metros. But that doesn’t always mean newlyweds should jump directly from the altar to the new home threshold!

Here’s my list of all the factors newlyweds must consider before deciding to buy a home as man and wife:

  • Planning to move in the next 5-7 years? - Keep renting! In today’s market, we will not see much appreciation. Thus, a sale in the next 5 years may lose you money and what little equity you may have gained. Generally, a home is not a good short-term investment because the transaction costs are too high. So if you own a home for only a short time, you might end up paying more to sell it than you have gained.
  • Are you starting a family in the near future? - Will you soon need more space? Think long-term before buying a place that you could soon outgrow. You don’t want to have to be upsizing from the house or condo you JUST bought.  You will lose money. If you think you will be outgrowing that starter home within the next 5 years, you need to either buy accordingly or hold off on making a purchase.
  • Consider your growing careers - Are one or both or you on a job trajectory that may force you to move to a new city or territory for that promotion – or for a stronger job market? If the answer is a solid “yes,” buying might not be right for you.
  • Questionable job security – Is your company potentially downsizing or laying people off in the near future? If your or your spouse’s job’s future is not certain, do not jump quickly into home ownership. Also keep in mind that most lenders will want to see consistency in your professional history. This is not the time to switch industries or decide to start your own company. You’ll likely have to show that you’ve been in the same job—in the same industry—for at least a couple of years.
  • Do you have 20% for a down payment? - If you two lovebirds haven’t built up a significant savings yet, you may need to wait till your bank balance is higher.
  • Don’t assume two buyers are better than one - One person’s bad credit or deep debt could torpedo any immediate plans for homeownership. Know this before attempting to go down the route of homeownership.

Consider this: For the Nearly-Weds–Have an Exit Plan

If you are planning to purchase a home before the wedding, make sure you have a legalized exit plan drawn up and signed. Not romantic, but necessary. In the rare case that you’re jilted and left at the altar, you don’t want to be left untangling the dissolution of the home you own with an ex!

My number one rule of newlywed bliss when it comes to homeownership: Don’t start off a marriage by overextending yourselves financially!

Newlyweds do not want to start off a relationship by being overextended financially, just because they caved to societal pressures and the notion of “that’s what everyone says we should do.” If you are not ready to buy, then don’t! Never jump into the purchase of a home if you are not able to afford to buy at that moment. Yes, today’s market makes this a fantastic time to buy. Great prices, great interest rates. But if you can’t afford it . . . keep renting and keep saving!

That is how you live happily ever after.

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  • Plantingourpennies

    Solid advice. The one thing I would add is that sometimes it makes sense to do the home purchase before the wedding if you’re primarily going to use one person’s job/credit history to do so. Mr. Planting our Pennies was self employed in 2009 when we were getting married and buying our house, and credit was so tight there was no way he would be an asset on a loan application showing his self employment income. So he transferred some of his savings to my account a few months ahead of time so we would show more than sufficient assets for the purchase. I qualified for the mortgage by myself, we closed on the house, and then a month later we got legally married.

    • PhilChance

      That is why they mention the “exit plan”.