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I grew up an orphan...even though, I've been able to save up around 40K..not enough for a down payment for a house where I live now, but kind of close.

I am 35, and made the crazy decision of being with a single mom..so there is a 10-year-old now.

I'm wondering if buying a house is essential..I've read a house is a forced savings plan, but I've started putting money into my savings on my own (automatic from my paycheck every month, and contract/teaching income, which is extra money).

Would I be alright not buying and just saving?

Thanks!

Michael Cabus
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  • Welcome to Money.SE! From a personal finance viewpoint, you don't really give enough information. Check out the rent vs buy calculator from this question. – Peter K. Jan 03 '16 at 22:54
  • Cool..thanks...seems like not owning a home is not the end of the world..it'd be okay if I did not ever...just saving is important... – Michael Cabus Jan 03 '16 at 23:00
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    @MichaelCabus, actually if you are just saving you are actually losing money in real terms. If you want to get ahead and build wealth you need to invest your savings, and property is one way of doing this, and can be quite rewarding if done properly. –  Jan 04 '16 at 04:00

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That is a decision you need to make, but some of the pros and cons you could consider to help your decision making include:

Pros:

  1. If bought at the right time in the property cycle and in a good growth area, it can help you grow your net worth much quicker than having money in the bank earning near zero interest.

  2. You would be replacing rent payments with mortgage payments and if your mortage payments are less than your current rent you will have additional money to pay for any expenses on the property and have a similar cashflow as you do now.

  3. You will be able to deduct your interest payments on the mortgage against your income if you are in the USA, thus reducing the tax you pay.

  4. You will have the security of your own house and not have to worry about moving if the landlord wants you out after your lease expires.

Cons:

  1. If bought in a bad area and at the top of the property cycle you may never make any capital gains on the property and in fact may lose money on it long term.

  2. If the mortgage payments are more than your current rent you may be paying more especially at the start of your mortgage.

  3. If you buy a house you are generally stuck in one spot, it will be harder to move to different areas or states as it can cost a lot of money and time to sell and buy elsewhere, if renting you can generally just give notice and find a new place to rent.

  4. Property maintenance costs and taxes could be a drain on your finances, especially if the mortgage repayments are more than your current rent.

  5. If your mortgage payments and property expenses are way more than your current rent, it may reduce what you could be investing in other areas to help increase your net worth.

Victor
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It sounds like you are doing great.

A couple points: You really need to crunch the numbers such as how high is rent in your area, and of course home prices. Home price gains are not a given. It will depend on many factors such as the job market in your area, crime, schools, how long you stay put,..etc.

If you take the standard/non-itemized tax deduction you might not save at tax time if you don't pay enough interest. Your decision to have automatic deductions from your checks was spot on; it is human nature to spend every nickle. Also, money in a savings account won't keep up with inflation. It will slowly degrade; you will want other investments. -Good luck

fendermon
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    You call saving $40K by 35 doing great ?!?!?! –  Jan 04 '16 at 09:26
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    It's not that great..but I really started from nothing..no family at all, inheritance, etc... – Michael Cabus Jan 05 '16 at 01:07
  • I do of course have a 401k, value of around 150K, but I don't count that, as its for retirement...so I won't really spend it now... – Michael Cabus Jan 05 '16 at 01:14
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    @MichaelCabus, well that is why I would not call it great, I would call it an ok start to something that could be built on to become better, and it is better than being in consumer debt at age 35, but I would not call it doing great. –  Jan 05 '16 at 02:44
  • Well..it's no secret that wages stagnated, costs have risen..welcome to America 2016! It's better than the younger generation, most of whom had to live at home, not enough work, and have no possibility of things like home ownership..I hear this every morning on NPR...young people who say there is no possible way for them to save anything at all...every dollar earned spent on cost of living... – Michael Cabus Jan 06 '16 at 03:17
  • In addition to how many Americans who had their homes foreclosed on in 2008 and whose credit scores are so bad at this point no bank would lend to them...I know someone around my age in this state; when she applied for a mortgage the underwriter said she'd have to give up her kid as collateral...we live in a time where acquiring things is an almost religion and it buries us...she will never own a home again, most likely... – Michael Cabus Jan 06 '16 at 03:21
  • @MichaelCabus, and whos fault is that? Is it the banks fault that they provide the credit, is it the advertisers fault for promoting their products, is it your your parent's fault for not teaching you about money and how to manage it. Why do you think so many people are in financial difficulties, maybe it is because they are willing to wait in line for days when the new Ipone 6 comes out to say that they were one of the first to get it, when they already have a perfectly working Ipone 5. Maybe people should start to take responsibility for their own actions instead of always blaming others. –  Jan 10 '16 at 22:02
  • Oh George, you don't read very well. I have never had parents (orphaned)...and, I never have owned a home..ever..so never had a foreclosure..or any other financial difficulties..NONE AT ALL..I'm carefully debating now whether to own a house for the first time, and if it's not the right time, that's okay...I taught myself financial literacy because...if I did not, no one was going to be there to bail me out – Michael Cabus Jan 11 '16 at 23:06
  • I supported myself through college, worked full-time; for most of my life I have worked two jobs...studied in an engineering field in college, etc...I cannot be your example of young people who have no clue, sorry mate...but I enjoyed the lecture...clever you... :) – Michael Cabus Jan 11 '16 at 23:10
  • What I don't do is seek to blame people for their misfortunes, but instead try out empathy...it's an old, outdated method, but it actually costs you nothing...and if you believe in that whole God thing, it kind of relates..but even if not...it's great for your health and well-being...om shanti – Michael Cabus Jan 11 '16 at 23:13
  • As a final thought, it's often where us Americans get mixed up; financial troubles are not as bad as lack of empathy. Why? Think of these people in ISIS...what is there main problem? It seems it all starts with them believing they are more right, more "holy" than others...they have very hard and fast rules of who is right, who is wrong...it leads them to the path of violence...for lack of empathy and violence are mere stones throws away...I'd be much more troubled about someone who shows lack of empathy than someone who has had a few financial bad patches... – Michael Cabus Jan 11 '16 at 23:35
  • Taking responsibility for being a single parent + working+ regularly saving + looking for ways to invest = doing great. It's simple math. Sheeze George get a clue. – fendermon Mar 22 '16 at 05:25