If you’re like the average first-time home buyer, you’ve probably been renting for years. How do you know when it’s time to stop renting and start the home buying process? Is it always better to rent than buy?
Buying a home is an investment, while renting can often feel like throwing your money away. But renting has its advantages, and it’s not always the best financial decision to buy. Timing and preparation are everything, so if you’re considering making the switch from renter to homeowner, ask yourself these questions first:
Are You Staying in the Same Location?
Renting is a great option for those who aren’t certain about where they’re going to settle their roots. Buying and selling a home are lengthy processes and they can be quite stressful, especially if you must do both so close together.
It’s also not financially wise to save up money for a down payment, finance a mortgage, and then have to go through the entire process again in a few years. If you’re going to be moving to another city in the next three years or your location is up in the air, it’s best to keep renting for now.
Are You Ready to Be Responsible for Repairs?
Being a renter means that a landlord or property manager is responsible for the safe upkeep of the home. If something major happens, your landlord is required to cover the costs. When you own a home, you’re responsible for every repair – big and small. Make sure you are in a financially fit place to cover these costs as they arise.
Many renters underestimate how much these costs can be. If your dishwasher, water heater, and clothes dryer all bit the dust at the same time, and you had to manage these costs on your own, would you be able to? Consider starting an emergency savings fund or opening a line of credit for emergency use only.
Have You Saved a Down Payment?
Buying a home usually requires a down payment and closing costs. For example, Community First’s first-time homebuyer program requires a minimum down payment of 3%. Regardless of the down payment option you select, you’ll need to have enough in savings to cover the additional costs associated with purchasing a home, including real estate taxes, loan closing costs, a homeowner’s insurance policy, and the funds required to establish an escrow account for certain taxes and insurance. In many cases, you’ll also need reserve assets to cover several months of the new housing expense after the transaction is completed.
If you’re really excited about buying a home, start saving today. Once you’ve got a savings built up, you can work with a mortgage specialist to help you understand exactly how much house you qualify for.
Is Your Credit in Good Shape?
Your interest rate and the type of mortgage you will qualify for are dependent on several factors, including your credit score. The higher your credit score, the better. If your credit score isn’t great, continue renting for now to grow your score.
There are several ways to improve your score if it’s not ideal. First, start paying off any debt. Second, make sure you are paying all your payments on time each month. Finally, if you don’t currently have any monthly payments, try opening a secured line of credit.
Are You Prepared to Pay Ongoing Home Ownership Costs?
Home ownership includes paying additional insurance premiums, property taxes, and sometimes HOA fees. These monthly costs are ongoing, and you’ll need to include them as a factor in your decision. Make sure your monthly income, minus your expenses, is enough to cover these costs.
If you answered yes to all these questions, then it might be a great idea to purchase a home. Our mortgage specialists can help you start the home-buying process.
To get started, Contact a Mortgage Champion today!