Homes: To Buy or Rent?
The “buy vs. rent” question isn’t always an easy one to answer. Investing in a home is a huge step and great for a number of reasons, but renting has its perks, too — what to do? Asking yourself these questions is a great place to start.
Are you ready to stay in one place for at least five years?
If the answer is “yes,” then chances are investing in a home would be a good move. It takes about five years to gain a decent amount of equity in your home, so you should be able to sell it for more than you paid and fund your dream for the next home.
If the answer is “no,” renting is probably your best option. Use this time to start saving for a down payment, so you’re financially prepared when you’re finally ready to settle down.
Do you have a down payment ready?
If the answer is “yes,” then you’re one step closer to buying a home. Most mortgage lenders will expect at least a 20% down payment, but depending on who you go through, you can get as low as a 3% down payment. Just remember, the lower the down payment, the more risk you are to the lender, so there will probably be more fees and a higher interest rate.
If you don’t have a down payment ready to go, then your best move may be to put off buying and kick-start a new savings plan, which will give you more options in the future.
How much can you afford to pay each month?
Though buying a home is a great investment, the monthly costs can often add up to more than rent. But that doesn’t mean you shouldn’t buy! Decide how much you can realistically afford to pay each month and do the math on whether or not that would cover a monthly mortgage payment on your ideal home.
When deciding this, don’t forget to consider the kind of home that would allow for an advantageous resale. Sure, you can buy a low cost home with a lower mortgage, but it might be hard to make money or even break even when you go to sell it — not such a great investment.
Once you consider these factors and know what you can afford, add up the approximate monthly payment, utilities, homeowners insurance and property tax payments and compare it to rent (which will likely go up every year or so), utilities, renter’s insurance and any other payments related to having an apartment. Perhaps you can afford a home in a neighborhood that fits your needs. Perhaps renting gets you a home in a better location with nicer amenities — which is more important to you?
Are you ready for the upkeep that comes with homeownership?
If you are handy or have the means to set up an emergency repair fund, you might be ready to take on the leaky faucet, roof repairs or sewer line breaks.
If you’re not into fixing things up, you may be interested in buying a less needy condominium or townhouse, but renting could still be the best option.
Are you into landscaping?
If you dream of having a garden and you can’t wait to tackle the weed and feed process, then homeownership might be for you.
If the thought of pushing a lawnmower around the lawn once a week gives you hives and you can’t afford to hire a mowing service, you may want to continue renting.
Are you a pet person?
If your life is just not complete without a pet, it might be time to consider homeownership. Though some apartments accept dogs and cats, your options are limited — not to mention the fees that usually come along with having a furry friend as a roommate.
Could you use a tax break?
If your earnings put you in a bracket where being able to deduct mortgage interest and property taxes will help you out, you may want to consider buying a house.
If you’re still getting money back every year, then perhaps a tax advantage won’t make a very large difference and renting is still your best option.
Related Topics: At Home