Buying vs. Renting a House? Five Questions to Consider
You’re thinking about moving from apartment life to a house, but you're not sure you're ready – financially or otherwise. How much yard do you want and how will you maintain it? How much living space do you need? What are the challenges of home ownership versus renting a home? What will the financial aspects be, particularly when it comes to protecting your home and belongings?
While you’re considering whether to rent or buy a house, here are five questions to consider that may help you figure out what’s best for you.
1. Are You Financially Prepared to Buy?
One early step toward home ownership is saving a down payment. You'll also want to review your credit history and perhaps pay down outstanding debt before applying for a mortgage. If you're just starting your career or have recently added a large amount of financial obligations such as a wedding, student loans, or a new car, you may need to get your finances in order before you buy a house. You’ll also want to figure out what your costs will be to close on a home, should you decide to buy. Keep in mind that, if you do decide to buy, some homeowners insurance policies provide a discount when you bundle multiple policies, such as auto. Be sure to look into this and other ways you could possibly save some money.
2. What's Happening in the Local Real Estate Market?
Reviewing the local real estate market can help you determine when the right time is to buy vs. rent a home. If home prices are rising, you may feel motivated to move up your time frame and buy something before you're priced out of the market. This may mean stepping up your savings plan and forgoing other large purchases, like a new car. Or you may decide to continue to rent for a few years, hoping that prices will level off or drop. Rising or falling interest rates can also affect the real estate market and likewise your buy vs. rent decision, as they will affect the overall amount of your mortgage payment.
3. Do You Expect to Move Again?
There are a number of one-time costs associated with buying a house. If you plan to move in a few years, it may not make the best financial sense to purchase a home and incur those costs. If you do need to buy, talk to your mortgage lender about which loan product would best fit your shorter time horizon. Check your time frame for moving and determine how quickly you want to build equity in your home.
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4. Are Your Ready to Handle Homeowner Responsibilities?
While you're still renting, research the added expenses you will have as a homeowner. The nice thing about renting a home is that when something breaks, you can call your landlord for help. When you're a homeowner, all maintenance and repairs become your responsibility. This means taking the time to learn how to fix things around your home, or paying someone else to do it. Necessary expenses like homeowners insurance and property taxes should not be overlooked when it comes time to make a buy vs. rent decision. As a homeowner, these expenses must fit into your monthly housing budget. It's also a good idea to build an emergency savings fund for large homeowner expenses, such as new appliances or major repairs.
5. What Type of Home Do You Want?
Deciding what you can afford and what type of home you need is also important. Does it make sense to buy a small home now or should you hold off and purchase a larger house in the future, when your family grows? Looking at the price differentials in smaller vs. larger homes and the amount of maintenance required for larger yards can help you make a decision about buying now or waiting until you're ready for the house size you'll want in the future.
Achieving the dream of home ownership allows you to build equity for your future and also gives you a place to call your own. If you think you're ready to make a leap from renting to buying, understanding the costs and added responsibilities of owning a home may help you gain confidence as a potential buyer in the real estate market.
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