Are you writing yet another rent check and thinking about other options? Is owning your own home always better than renting? Is now a good time to buy a home? Even as the economy seems to be improving, you’re probably asking, “when should I go from renting to owning?”
The answers to these questions have a lot to do with where you live. In many places, the cost of buying and financing a home can be comparable to what you’d pay to rent. But that’s not the entire picture. There are things like taxes, insurance, even maintenance on the house – all of these will add to the cost of owning.
But when is it the right choice?
Here are five questions to ask yourself that may help you decide whether renting or owning is a better option for you at this point in your life:
1. How long will you stay?
Do you plan to stay put for five years or longer? Many realtors say this is the minimum amount of time you should plan to live in a house you plan to buy. That’s because home prices do fluctuate and you can’t count on being able to get what you paid for it – just ask folks who bought homes in 2006!
2. Is your current job stable?
How long have you been at your job and how stable do you consider it? These are big questions you need to be very honest about answering. Even if the company is on stable ground, is there a chance you could be laid off? And what about your job skills – are they easily transferable? Remember that if you rent, it’s much easier to look for a new job outside the area.
3. How is your credit?
Can you qualify for the best mortgage rates with your current credit score? This is another important aspect to consider. If your FICO score isn’t 650 or higher, you’ll have a hard time getting the best mortgage rate. You may qualify for a higher risk loan — however, that will cost you thousands more over time. It may be better to wait and work on improving your lackluster credit score.
4. How much do you have saved?
In order to qualify for a conventional loan, you’ll need between 10 percent and 20 percent as a down payment. You don’t want to wipe out all of your savings buying a home — save some for the inevitable emergency situations that will come along.
5. How much can you afford?
Most financial advisors agree about one-third of your income is all you should spend on a home. After calculating the cost of your mortgage, insurance, taxes and other direct costs, where does that leave you? (Hint: there are online mortgage calculators that can help with this.) How much more will it cost to buy than rent? If the difference is too great, consider waiting and saving more.
While buying a home is a dream for many, it’s also a big commitment. Carefully consider all factors and look at the decision with a critical eye. If this is the right choice for you after careful consideration, then congratulations!
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