Deciding whether to rent or own a home is a really big step in anyone’s life. There is a lot to consider when making this decision, though a great deal of the decision weighs on the state of your finances, there are a few questions that should be considered that depend on your life circumstances. Here are just a few of the major points you should take into consideration when trying to decide if it is the right time for you to begin the process of buying your first home.
Having a down payment is a key piece to the home buying puzzle. Generally you are asked to put down 20% of the total cost of the home as your initial down payment. The amount that you are able to put towards your home directly affects the amount of your monthly mortgage payment, the more you can put down up front, the lower your monthly payments will be.
If you don’t already have savings dedicated to a down payment, your best bet is to live as cheaply as possible and save a good chunk of money to put towards that first payment. If you can afford to live at home for a few years and save every penny you can, this is ideal. Working full time and saving for a home while living at home has become the norm today and is wise for your wallet if your parents are offering to help you, but getting a roommate and paying minimal rent out on your own works as well.
Your credit score will also directly affect your monthly payments and most importantly, your interest rate. You want to be sure that your credit is in good condition before you go out and try to get a home loan. Take some time when you know that you want to start the process of buying a home, and focus on repairing any negatives on your credit report. Taking the time to go through and get rid of any old information and repair anything that you need to bring your credit score up will pay off greatly in the end as you will save thousands possibly with a lower interest rate. You can also work towards saving for that down payment while managing credit, as every bit of extra money counts.
Is your situation long term? Not that once you buy a home, you have to live there forever, but you really want to take into consideration if this is where you want to settle long term. Make sure the area is complimentary to your career opportunities, has a safe community with good schools and it’s a place you can see yourself living long term. Buying a home is a huge commitment and you want to be sure that you can see yourself in the home long term and all your needs are going to be met before you pull the plug and begin the purchase process.
When you are a homeowner, there are expenses in addition to your mortgage that need consideration. There will be additional fees and taxes, the sum depending on the price of your home, some of these, like closing costs happen only once, while some like property tax occur every year. Will you be able to afford these extra expenses? It may simply come down to spreading out the costs and incorporating them into your budget.
You will also need to consider homeowners insurance, a must to protect your home against those unexpected emergencies. You should be prepared to open a separate savings account to amass a home repairs fund because there will be projects necessary depending on the condition of the house. Maybe you don’t want to be responsible for all these extra costs, one perk of renting a home is that a landlord would be responsible for damages and repairs.
If you are ready to buy, you may have reached the conclusion that paying rent every month without something to show for your money in the end is not for you. Buying a home does give you the satisfaction of knowing that paying your monthly payment each month is an investment towards your future. Just remember that purchasing a home using debt is really the purchase of a mortgage, and the cost of paying it all back can be high. A home does not truly become an investment unless the value of the property is greater than the underlying debt owed, and even then no gains are realized unless the property was sold. Owning a home and having equity does provide a level of financial security and a safety net that you have in case of extreme emergencies, so know your financial options while managing your property.