We are now in a whole new era of home buying/renting. Millennials are opting out of what used to be the American Dream: a house of your own with a yard, a dog, and a mortgage. In many areas, renting is actually a more affordable option than buying. But what about the sense of pride in buying a home? What about the security of your own yard, or the opportunities for really making the home your own?
There are a lot of factors that go into this decision. Should you buy or rent? Here are the factors you should consider when moving to a new home.
How long do you plan to stay?
This could be your answer to the buy or rent question. Securing a mortgage only really makes sense if you plan to stay in the home for at least five years. Otherwise, the upfront costs of buying a home probably just won’t be worth it. Closing costs, realtor fees, appraisal fees, moving costs, and other small fees can really add up. Paying those costs multiple times over the course of a few years can hurt your finances.
If you are planning on sticking around, buying a home can give you security and long-term benefits that renting your home can’t. You will accrue equity over time in your home, and home improvement projects can increase the value significantly. Securing a fixed-rate mortgage can also protect you from cost spikes in the rental market. This means that over time, your monthly mortgage payments might actually be lower than what you would pay for a rental!
Take an honest look at your finances
Just because you can afford a mortgage payment doesn’t necessarily mean that buying a home is the right choice. Here are a few numbers to look at to help make your decision:
Your emergency fund. When you rent your home, your landlord is responsible for fixing anything that breaks. When you are a new homeowner… it’s all on you. Financial advisors say you should have enough to cover 3-6 months of expenses. If your emergency fund is looking small, consider renting instead while you save.
Down payment and closing costs. It might seem like a lot but aim to have a downpayment that equals 20% of the cost of the home. For reference, that means a $50,000 down payment for a home that costs $250,000. The lower your down payment, the more debt you have to take on, which will cost you more in interest and private mortgage insurance.
Credit score. We all know we’re supposed to have good credit, but just a one percent change on your interest rate can amount to thousands of dollars saved — or spent — over the course of your mortgage.
Your debt-to-income ratio. Lenders will be looking to see how much debt you already have and how much income you bring in monthly. This is to help ensure that you will actually be able to cover your mortgage payments, and can affect whether you can get financed. If you already have a significant load of debt, you might consider renting for a while and paying it down.
What is the market like in your area?
In some areas, the real estate market is just plain competitive for buying a home. You may not be able to get the house you want at a price that you can afford. In that case, it’s better to rent than to buy and get in over your head. You can also find a rental while you are still out of state, something that is much harder to do if you’re looking to buy.
On the other hand, buying a home can actually be significantly more affordable in some areas. In more rural areas where the rental stock is limited, purchasing a home might be the better option. Just be prepared to watch the listings for a while until the right home becomes available! Either way, you can always consult a realtor to learn a little more about your local market prices and availability.
How much time do you want to invest?
Let’s be honest: buying and owning a home takes an investment of time and energy. If you’re excited to put some energy into house hunting, caring for a yard, and tending to the fixes big and little, buying a house might be a good choice! If you feel stretched thin as it is with work, family, or something else, it may be best to let a landlord take care of your space.
When you’re ready to make the big move, let us help you get a guaranteed moving quote.