When do you stop renting and seriously consider buying a home? It depends on your lifestyle, finances, employment plans, and other factors that could make buying a house an excellent or terrible idea. Here are 5 signs that you should probably keep renting and 10 indicators it's time to seriously consider buying a house.
SIGNS THAT YOU SHOULD KEEP RENTING
Insecure Income You don't need to make lots of money to buy a house, but it's smart to go into homeownership confident your income will only increase. Renting can be cheaper than buying (even though rent tends to increase faster than home prices). As a homeowner property taxes rise with property value, and you're responsible for upkeep, repairs, and improvements, all of which require money. So if you work a job where the hours or income are uncertain, and there's little change for advancement, or you're in school for the next few years, then its not the best time to buy.
Houses in that Area Sit on the Market
When you want to sell, it's better to be in an in-demand market than to have a house that takes a long time to sell. Many people can't afford to pay two mortgages, so waiting to sell before finding a new place is usually a must. When you're ready to move on, it's best to be relatively certain your house will be a quick sell. You can look up average days-on-market information for your area online, but to get the most information, check with a local Realtor.
You Like Change Don’t buy if you don't want to stay in the neighborhood! One advantage to renting is you can try somewhere else once your lease is up; it can be fun to try something new! People who want to stay in one place awhile can benefit from homeownership, but if that's not you, then renting is best.
Lots of Debt and No Significant Savings You can buy a house when you have student and credit card debt -- but if your debt is overwhelming, you won't get the best deal on your mortgage because your credit is lower than it could be. Likewise, mortgage loans typically require a down payment; you don't need a full 20% down in some cases, but to secure most loans, you need money stashed away. In addition, you have to pay fore appraisals, inspections, and closing costs. If your debt is high and you don’t have a down payment, tackle those situations before you start shopping. While you get everything in order, keep renting.
What You Want Is Unavailable Even if none of the above applies, it still might not the best time to buy a house. Mortgage loans are issued with the understanding that you're going to stay for several years or longer, so settling for a place that isn't quite right can be a terrible move. To avoid paying capital gains taxes on a home sale, you need to live in the house for at least two years. If you really want a yard and current listings don’t have adequate space, it's smarter to continue to work on your credit, build your savings, and rent than it is to buy a house that’s not right. If you had to move, you could lose ots of money instead of accruing equity and selling at a profit.
SIGNS YOU SHOULD CONSIDER BUYING
You're Staying in the Area
When you want to stay in an area a long time, it's a good idea to look for a house. You'll build equity while paying your mortgage, and housing prices tend to increase over time. If there's a lot keeping you where you currently live, you should seriously consider homeownership.
You Don't have Debt Mortgage lenders look at debt-to-income ratio when they consider a loan, and this can influence the interest rate. To save money long-term, get in the best financial shape possible before securing a mortgage loan. You might want to purchase a home after your student loans, credit cards, car payments, and any other debts are paid. If you want to be a homeowner, then after you're debt-free is the best game plan.
You have an Emergency Fund You show lenders you're a good prospect for a mortgage by increasing your savings account. By saving an emergency fund (money you only tap for emergencies) you show a lender you are financially responsible, which can lead to a lower interest rate and better terms on your mortgage.
You have a Down Payment One of the biggest expenses in homeownership is the down payment. Again, not all loans require a down payment; some (like VA loans) don't require any money down, and Federal Housing Administration (FHA) programs let you put as little as 3.5% down. That said, programs that take less than 20% down usually require private mortgage insurance (PMI) on the loan in addition to paying the principal, interest, taxes, and insurance every month. This PMI amount is calculated depending on the loan amount borrowed. To save the most money, get as close to the 20% down payment as possible.
Your Credit is Good One of the biggest ways lenders assess your ability to pay back a loan is your credit score. Your credit score is based on multiple factors, including how much credit you have to draw from (think of this number as an equivalent to your account limit on a credit card), how much credit you've used, how you pay back debts, etc.
If your credit is good and the rest of these financial attributes apply, it's probably a good time to buy. If you're worried about your credit score, you can improve it by paying all bills on time and paying off existing debt.
You’re Comfortable Tackling Basic Home Repair Renters have it easy. When something breaks they call the property owner to fix it – and the renter isn’t charged. That's not the case when you own the house. Toilet won't flush? Lights flickering? You have to call someone to fix it ... and pay them. Some homes come with a warranty that can help offset some of these costs for a few years. You can ask your Realtor if a warranty is an option when you buy. If not, familiarize yourself with basic requirements of homeownership and tools you'll need to fix minor problems.
You Want to Customize Your Home Although renting has its perks, one thing renters don't like is the house isn't theirs, and they can't treat it as such. Want to build a fence or paint the walls? Better check the lease!
When the house is yours, as long as you follow local permitting guidelines, you can be as creative as you like to make the place home. You can redo the kitchen, plant flowers, and mow the lawn on your own schedule.
You Like Privacy Many times a house or condo you buy will have more privacy than a rental. You usually get more square footage for your dollar when you purchase, and you don't have a landlord who stops by now and then. If you feel strain from people constantly being around your rental, it might be time to buy a house.
You Want More Stable Monthly Payments
It's not unheard of for a renter to pay higher rent every year. Although your property taxes will go up as home values increase, as a homeowner, your mortgage payment is going to be stable over time -- despite inflation. You'll be paying about the same amount toward the end of your mortgage as at the beginning, especially if you keep your escrow account balanced. Knowing you're don’t have to pay more year after year can be a weight off your mind and wallet.
You’re Emotionally Ready Buying a house is like getting married: it's exciting and terrifying! First-time homeowners might cycle through feeling elated at having a their own place, then doubt that this is the right place, etc. You know when your feelings are just a side effect from the commitment you're about to make ... and when they signify something more troubling. When you feel emotionally ready to step toward homeownership, it's time to start shopping for a house. If you have questions about the housing market or about becoming a homeowner, call one of our realtors today!