Being able to buy a home has been a lifelong American Dream. It’s a dream comprised of years of working, saving, and renting– and let me tell you, the journey is not as simple as some people think. Choosing to rent or buy your home is a major decision that affects not only your lifestyle but also your financial health.
Property ownership is presented as an investment that could constitute equity and a source of tax deductions. Rentals also have their benefits, including little or no responsibility and flexibility. However, people often believe that buying a home, rather than renting, is the more financially sound decision.
So if you’re currently renting and considering making that leap, here are nine simple questions to help determine whether you’re ready for a house of your own.
Are you aware of the costs involved in homeownership?
Buying a home means paying a monthly mortgage, utility bills, property taxes, and homeowners insurance costs, as well as all maintenance and repair expenses for the house. Property taxes and insurance alone already cost $2,500 – $5,000 annually, and that’s not even half of the whole bucket of fees! Get a better sense of the factors that come into play before making that final decision!
Do you have enough for down payment?
To get approved for a conventional loan, you’ll need to put down at least 3% of the house price, and some lenders require a higher percentage. Always remember that a larger down payment means fewer financing charges, so if you have a substantial down payment, it’ll be fewer costs for you in the long run (a.k.a. no Private Mortgage Insurance!).
Do you consider yourself NEARLY debt-free
Lenders compare your monthly income with your current monthly payments (e.g., credit card, auto loan, student loans). Doing this will help them determine your debt-to-income ratio, and in many cases, you’re not eligible for a mortgage if your monthly payments are more than 43% of your income. Check and determine if you’re almost debt-free, and if not, keep on paying down those debts!
Do you plan on living in the house longer than five years?
Living in a house for three to five years before selling will break your home purchase costs even. However, it’ll depend on how quickly home values rise in your area, but in most cases, it takes a few years to recover from the overall transaction costs. If you’re not able to commit to living in a house for that long, then owning one is not to your financial advantage.
Do you have children?
Are you starting a family or already have children of your own? Having a home of your own offers the stability of staying in the same school district, which benefits the kids. Parents strive to provide their families with a sense of community and allow their children to form lifelong friendships, which is why buying a home is their favored choice. Yes, owning a house isn’t essential for well-adjusted kids, but it surely is deeply valued by most American parents.
Can you deal with unexpected costs?
Being a homeowner is being responsible for all repair and maintenance costs– new appliances can run anywhere from about $400 for a bottom-of-the-line washing machine to upwards of $18,000 for a new HVAC system. So, if you’re determined to buy a house, have a plan in place to pay for those surprise expenses before you terminate your rental agreement.
Have you been employed for atleast two years?
Take note that most lenders require proof of your past two years of income and copies of your tax returns and pay stubs to confirm your employment history. If you don’t have that kind of working experience under your belt, consider renting and saving for the meantime. Some lenders may also want you to have worked at the same job for a minimum of six months, and you’ll have to be prepared for that as well.
Are you ready for remodeling and renovation?
Renters don’t have to worry about the pressure of remodeling their rentals. Odds are, their lease doesn’t allow them to update it. However, When you own your house, you’ll have the freedom (and responsibility) to remodel, update, and renovate. So if you’re ready for this challenge in all aspects, then maybe it’s time for you to start house-hunting!
Do you know how home values are doing?
An aspiring homeowner also needs to make sure that he buys a house that will increase value in the coming years. Make sure to pay attention to national housing trends and research the community where you plan to buy. If it’s on continuous growth and home values are on an upswing, then a house will be a smart investment. Otherwise, you’re probably better off renting.