How to Decide if Renting or Buying a Home is Best for You
To rent or to buy a home? That is the question. There are a lot of factors in play when it comes time to make this decision, but the biggest driving factor is whether or not you can afford to buy a house. So let's find out if you are. Read on and ask yourself these questions to see if it's the right time in your life to buy, or if renting is really the best option for you right now.
1. WHAT IS YOUR CURRENT FINANCIAL SITUATION?
How much debt do you have?
Ideally, you don't want to owe on any consumer debt or be paying off a student loan. If you do, it's prudent to focus on paying those things off first and then you can turn your financial attention to buying a home. Home ownership comes with expenses beyond just the purchase of the house. You want to be financially ready to handle them without overextending your means.
Do you have an emergency fund?
Having an emergency fund of 3-6 months of your expenses saved in advance is optimal. If you lost your job today, could you pay your current bills? What if a mortgage payment was added to that? That's your goal here. Some experts recommend that you get a mortgage payment that’s no more than 25% of your take-home pay. With a mortgage you can afford, you’ll have less stress and more room in your budget.
Do you have enough cash for a down payment?
A 20% down payment when buying a house is ideal, and you can avoid having to pay PMI insurance if you put that percentage down. Saving at least 10% down is the recommended minimum for the average loan customer, though there are some other options depending on your circumstances. You can read more about how to save up for your down payment here.
2. IS YOUR JOB STABLE?
How long have you worked there?
If you've started a brand new job, you want to give yourself a few months to settle in and make sure it's the right fit for you before committing to any big financial commitments, such as buying a house.
Do you expect to have longevity and stability?
You also want to feel secure and settled in your current position with your current company. Sure things can change, but overall do you see yourself staying employed there in the long run? Do your coworkers have longevity with the company or is there a high turnover rate? It helps to know the answers to these questions before making any big financial decisions.
Do you make enough in your current position?
As mentioned earlier, it's best to spend conservatively. If you do decide to go with a mortgage, make sure the payments are comfortably within your spending range. It's recommend that you keep your payments to no more than 25% of your take-home pay on a 15-year conventional fixed-rate mortgage (to avoid paying on interest). Read more on how to calculate a mortgage you can afford here.
3. HOW LONG DO YOU PLAN TO LIVE IN THE AREA?
Are you planning on staying in the location for at least 3 years?
Beyond the financial commitments of buying a home, you're also making a commitment to staying in one area for an extended period of time. If you're not in love with where you're living and working right now, then you probably wouldn't want to purchase a home there. Renting is a great option that gives you flexibility until you know where you want to be long term.
Are you willing and able to commit to one house and one place?
Piggybacking on the question above, you want to make sure you are ready to commit to living in one place for an extended period of time. With renting, you have the freedom to move as you please. If you're not happy where you are, it is a fairly simply process to end your lease and move into another place. With a house? Not so much.
4. ARE YOU READY FOR THE RESPONSIBILITIES OF HOME OWNERSHIP?
Are you able to manage the upkeep that a home requires?
With renting, you call the landlord when maintenance problems arise. With home ownership, you either fix it yourself or you pay someone to fix it. Then there's the routine maintenance that a home requires just to keep it ship-shape such as mowing the lawn and trimming the hedges that will be your responsibility.
Have you considered the extra costs including taxes, insurance, and homeowner association fees?
The financial aspects of home ownership don't end when you make the downpayment and commit to a mortgage payment each month. There are extra fees that you'll be paying beyond just those basics. Closing costs, taxes, insurance and homeowner association fees among them. Plus you're likely to have unexpected surprise costs along the way. It's really important to know as much of this information as you can before you buy, so you are prepared and ready. You can read more about home buying mistakes to avoid here.
Enlisting the help of financial and real estate professionals can help you best navigate through the process of renting and buying, and which is right for you in your current situation. If you're looking for help in the Topsail real estate market, Century 21 Action Topsail is here and we're ready to serve you. Contact us today!