So you are trying to figure out if is it better for you to buy or continue to rent. There are certainly positives and negatives for both, and you are the only person that can decide what is best for you. The best way to figure that out is to ask yourself these 6 questions and be very honest with your answers.
- Are you ready for the stress that comes with buying a new home? When you buy a new home, a lot comes with that. First and foremost is the stress of finding that home that is perfect for you and your family. Yes, house hunting can be fun, but the whole process can be very stressful, putting in offers, getting the new home, and moving into the new home, when things break, it is not on the landlord anymore, it's on you the homeowner. However, all that stress can be offset by achieving the dream of being a homeowner.
- Can you afford your mortgage payment? So, today, in some cases, rent is almost the cost of a mortgage payment. However, in most cases, the mortgage payment is usually higher. So when you look at your mortgage payment, you have to understand what you are paying. Part of your payment is the loan principal, along with interest. Along with the loan principal and interest, you usually will have homeowners insurance as part of your payment and in some cases, property taxes may be included. Remember as a side note, your credit score will dictate your loan amount and your interest rate which will affect your mortgage payment.
- Can You Handle The Down Payment? Down payments are pretty straightforward and simple. Now in most cases at closing, usually 20% is usually what is preferred. However, in certain programs, it can down as low as 3%, and sometimes you can get zero down. Usually, you can expect to pay something at closing and if you need to get money from a family member, ask them to code it as a gift and not a loan because if they include it as a loan it has to be added to your debt, a gift does not.
- How long are you going to stay in the home? The rule of thumb is that it normally takes four to seven years to break even on purchasing the home. Now, what do we mean by breaking even it means that your appreciation of your home has gained enough value to pay back the transaction and cost of ownership. So if there is a possibility that you may move in a couple of years for a job, then buying a home may not be the right fit for you.
- Are you ready for the commitment? Are you ready to make some decisions? You know your credit is banged up, so are you ready to fix your credit yourself or hire someone to fix your credit for you? Are you ready to pick your realtor to help you find your dream home? Are you ready to pick which mortgage company you want to go with? Are you ready to pick the color of the home? Are you ready to pick the neighborhood where values are going up, and school districts are good? These are all commitments, so are you ready?
- Are you thinking that your home is going to be part of your retirement? Yes, we are all getting older and we have to decide what we are going to have as part of our retirement portfolio, Roth IRA, 401 K, your home? Yes, your home can be part of your retirement because of the equity that you build up. You can even liquidate your home as you get older and downsize. This is not one that most people think of, but it is something that gains value for you.
So these are some questions to help you make your decision. If you answered yes to these questions, you are ready to start home hunting, if you answered no, maybe you need to renew that lease. Homeownership is a very big decision and has a lot of moving parts, so you have to weigh the pros and cons and decide what is best for you! Later this week we will do an article on the pros of owning your home and pros of renting.
