Buying vs. renting... how do you know which is right for you?
In my area rent is very high, and in most instances you can own something for about the same monthly payment as you pay in rent. Of course, this varies by area, but here in Louisville that seems to be the case. This makes the idea of buying seem very desirable to the majority of people. While home ownership is a wonderful thing, it is not right for everyone. There are many factors you should consider to determine whether buying or renting is right for you at this time in your life.
Your Financial Situation
Do you have debt?It seems these days most people have their share of debt. In a perfect world, you would have no other debt when you buy a home. However, I realize not everyone is willing to wait until they are debt free to buy. If you have debt and are looking to buy, I say proceed cautiously. Be absolutely sure you can manage your other debt repayments on top of your mortgage & still have plenty of wiggle room each month. Be sure to have a plan in place to eliminate your debt quickly. Consider paying off other debt before buying a home.
Do you have an emergency fund?An emergency fund of 3-6 months of expenses is ideal, but obviously the exact amount depends on your personal situation. This should be a fund set aside for emergencies only. This acts as a cushion if you have job loss, medical issues or another emergency pop up & will help you cover your mortgage & other expense until you get back on track.
Do you have money saved for a down payment in addition to an emergency fund?Having a substantial down payment (10-20%) can help lessen your monthly mortgage payments by reducing the principal loan amount. Putting 20% down can also eliminate PMI which can add up to an extra couple hundred dollars a month on top of your regular mortgage payments. No fun :( What is PMI? PMI is Private Mortgage Insurance. You are essentially paying for insurance for the lender, that way if you default & get foreclosed upon, the lender is protected. So you get nothing out of this deal, it's just an extra payment.
Can you qualify for a mortgage?All of the above factors are great for you to take into consideration, and once you have those answered, it's time to answer the tougher question: can you qualify for a mortgage? You can speak with a lender in order to determine if and how much you qualify for. I always recommend working with a local bank or mortgage broker, it makes the entire process run more smoothly. And remember, just because you get approved for a certain amount doesn't necessarily mean you should spend that entire amount. If you're self employed or have no credit score, you will need to find a lender/broker that will do manual underwriting.
Your work situation
Are you stable at work?Do you work for a company in which you feel secure? Are you self employed and certain you can create income for yourself? These are all good questions to ask before making the leap into home ownership.
Are you able to provide employment & tax information for the last couple of years?Assuming you will be getting a mortgage, you will have to provide lots of information upfront in order to qualify. Be prepared to submit employment history, tax information & bank statements for the last couple of years.
Your personal situation
Are you ready for responsibility?With homeownership comes a higher level of responsibility. Be sure you're ready for it. You may have to make some touch choices when it comes to prioritizing. Every once and a while you may have to choose between going out with friends or staying home to cut the grass. You might have to cut out the daily lattes & shopping trips in order to save up for a new dishwasher...
Are you prepared for home maintenance?Obviously there are tons of different types of 'homes' and with each type comes a different level of maintenance. However, no matter what type you choose, a certain level of maintenance comes with owning a home. Are you ready to take on (or pay to hire out) services such as mowing the grass, repainting the siding, or fixing a broken toilet? All of these become your responsibility once you decide to own rather than rent. No more calling the landlord to solve the problem.
Do you plan on staying put for at least 5 years?The general rule of thumb for buying a home is to plan to stay put for 5 years. There are no guarantees, but at this point you should have some equity in the house & at least be able to recoup selling costs (commission, closing costs, repairs, etc.) If you plan on moving within this time frame, it may not be a good idea to buy.
Owning a home is a wonderful opportunity as long as you make sure you a ready to make the plunge. That time may come at different times for different people. There is no specific age, income or situation that dictates when that right time is for you.
Do you currently own or rent? What other factors are keeping you from buying a home?
share this on::