Your relationship is ending, and you’re soon facing moving out of your current home. But you’re not sure if you should lease an apartment, purchase a house, move in with friends, or go back and live with your parents or another family member after your break-up.
There are so many emotional and financial considerations, each with their own set of implications. How will you decide?
Start by asking yourself some tough questions, compare the financials, and pay attention to the non-monetary pros and cons.
6 Housing Questions to Ask Yourself
1) What do you need in a home?
First list out what you need in a home before you start on your list of wants. Consider who will be living in the house and what space is required.
Sure you may want room for a home office, yoga studio, play area, and your craft and sewing projects, but is it a bona fide need?
It’s entirely possible to meet all your needs with a leased property. And maybe even a few of your wants. Attempting to purchase them all, however, may cause you to overextend yourself financially.
2) How long are you planning to stay in your next home?
Purchasing and selling a home involves costs, far beyond the purchase price.
Realtor and attorney fees, inspection fees, appraisal fees, mortgage origination fees, mortgage insurance, and title insurance costs are among those to consider.
On top of buying the home, you’ll also need to maintain it. How will you pay for on-going maintenance, repairs, and replacement costs?
These additional costs may make owning a home far less practical unless you remain in the property more than a couple of years.
Selling within the first few years, might not give the home time to appreciate enough to balance out these additional costs.
3) What’s the likelihood of house prices rising?
In recent years the housing market showed us it falls and stagnates as well as it grows.
How would your overall financial life look if your house’s value increases slower than the market, does not increase at all, or decreased suddenly?
Your home may not be an investment at all, only an expense.
4) Will you be eligible to save on taxes by purchasing?
While it’s true some buyers can deduct some costs of homeownership with tax savings via the mortgage interest deduction or property tax costs, not all do.
You must be able to itemize tax deductions to receive the benefit, and the new Tax Cuts and Jobs Act (TCJA) will also limit many deductions for 2018 and beyond. The change in standard deduction will also affect many taxpayers and whether they will itemize or not.
With your new relationship status, your tax-filing situation may be different, and your deductions may change. Speak with a tax expert to understand your potential tax savings if any.
5) Are you financially stable right now?
Breakups typically impact your financial life dramatically.
6) Are you emotionally stable right now?
This may indeed be the hardest question to answer while also being the most important.
Breakups are stressful. In fact, divorce is number two on this list of the 10 most stressful events of life. While you may understand that logically, you may not be entirely aware yet of how it’s affecting you.
Rushing into a decision to purchase or lease a home, or even move in with someone else may only lead to further stress down the road.
Discuss your emotions with a close friend, family member, or a professional if you need help sorting your thoughts and feelings out.
Comparing the Financials
You’ll want to look at the overall money picture. Accurately analyze the economic difference between being a roommate, leasing an apartment or buying a home.
Also, consider if you’ll need to spend money on any furnishings for your new place.
Factor in the entire cost of home ownership —not merely the monthly mortgage payment versus lease payment, to see a clearer picture.
You can run a simple lease vs. purchase comparison by looking at the price-to-rent ratio. Taking the home value and dividing it by the annual lease amount calculates this. In general:
- When the price-to-rent ratio is higher than 20, leasing looks to be the better option
- If the ratio is less than 20, buying may be the better way to go.
Any comparison, however, is only beneficial when you are comparing similar properties.
A sophisticated, yet easy to use online tool requiring a few additional inputs does the calculations for you – found here.
Additionally, consider if finances not tied up in a home could be directed elsewhere to improve your overall net worth and financial security.
“Rather than simply focusing on monthly or annual costs of the buy versus rent decision, consider which option would have a greater positive impact on your overall wealth at the end of your stay. For example, let’s say your total costs of ownership were $2,000 a month and you could rent a similar property for $1,800 a month. You might consider how that additional $200 a month could grow if you were to invest it in a diversified portfolio and compare it with all the home equity you will build up during the same time through your mortgage payments.” – Fidelity Investments
The Non-Monetary Factors
When weighing the differences between the housing options you’re considering, take into account the non-monetary benefits of each as well.
- Does one offer the amenities, outdoor space, or ideal location you desire
- Will one keep you closer to your family or work?
- Will you feel safe in either place?
When coming out of a relationship, you’ve no idea what your life will be like six months or one year later.
Give yourself time to get accustomed to your new life. Even just two or three months spent with a family member or friend may help you make a better decision later.
Making A Housing Decision After a Break-up
Leasing or buying can each work in your favor.
Yes, owning a home may be financially beneficial over an extended period.
But leasing (or rooming) may be your best option today.
Ask and answer the hard questions and crunch the numbers.
Then make the best financial and emotional decision you can, with all the monetary and non-monetary information in hand.
Questions, comments, or advice to add? Please feel free to leave them below or contact us here.