When it’s time to move, you may be faced with the decision to either buy or rent. This conundrum isn’t just reserved for young adults moving out of their parents’ homes, but also to empty nesters or professionals who are relocating for a new job opportunity.
Before you take the plunge, be sure to ask yourself these important questions first.
Am I prepared to maintain the home?
As a renter, you’ll likely not have to do much in the way of home maintenance and repairs, unless it’s specified in your lease. With homeownership, on the other hand, everything is your responsibility: cutting the grass, watering the flowers, clearing the gutters, washing the windows, and making any repairs will ultimately fall on your lap, unless you pay someone to do it for you. Make sure you’re prepared to dedicate some of your free time to tasks like these if you choose to go the homeownership route.
How long am I planning to live in the home?
While it’s impossible to know exactly what will happen in the near future, you may have specific intentions with where you want to be within the next few years. If you’re planning on changing jobs or moving to a different city some time soon, you might want to rent instead of buy until things settle down.
On the other hand, if you’re quite happy where you are and have no intentions moving anytime soon, planting some roots through homeownership may be right for you. Selling can be expensive, so you don’t want to have to fork over more money than necessary if you don’t plan on staying put for at least a couple of years.
How much can I put towards a down payment?
While you may be asked to put forth both first and last month’s rent as a tenant, you’ll need to come up with a much larger sum of money as a buyer. Conventional mortgages generally require at least 5% down against the purchase price of the home. Some government-backed mortgage programs will let you put a down payment of 3.5% or sometimes even less if you qualify. If you don’t have enough money to cover the down payment, you’ll either need to rent, or save up until you’ve got enough.
What is my credit like?
Lenders prefer to deal with borrowers who have a decent credit score, which is usually anything above 680. If your credit score falls short, you may not be approved for a mortgage. Even if you do get approved, you stand a bigger chance of getting slapped with a higher interest rate, which will make your home loan more expensive. In that case, you may want to start out renting and work to getting your credit score improved before you consider buying in the future.
How much can I afford to spend on the home?
There are plenty of costs associated with owning a home: utilities, property taxes, homeowner’s insurance, maintenance and repairs all cost money on an ongoing basis. That’s money above and beyond your mortgage payments. You’ll need to come up with a budget to see how much you can comfortably afford after factoring in your net income.
Am I emotionally prepared to buy?
Some people have a problem with commitment. If that’s you, renting may be the better option; for now, anyway. Usually, tenants are only obligated to commit to a one-year lease, after which the tenancy can be renegotiated. When you buy a home, you’ll have to select an area and a house that you’ll want to live for at least the next few years so you can recoup the cost of buying and eventually selling.
How stable is my job?
You don’t really want to lock into a mortgage if your job isn’t stable. Your lender may ultimately make that decision for you, but it’s something you should think about before you even consider applying for a mortgage. If your job is on shaky grounds, or you’re only on a short-term contract, renting may be the better option.
How do prices of homes versus debts compare in the area?
In many centers, the cost of rent can actually be pretty close to the cost of homeownership after everything has been factored in. Mortgage interest rates have been so low for the last few years, so buying may actually be the cheaper option in many cases. In order to accurately compare the cost of renting versus buying, remember to include utilities, property taxes, homeowner’s insurance, maintenance, repairs, and HOA fees if applicable, along with the mortgage principal and interest payments.
It’s also wise to consider long-term benefits of building equity and wealth through homeownership that results from an increase in values and equity as you pay off your mortgage.
Your real estate agent and mortgage specialist will be able to help you effectively compare the two, and ultimately help you make the right decision.
How you answer these questions will help guide you towards making the right choice and determining whether or not you’re ready to buy, or if you’re better off renting, at least for a little while.