You might be asking yourself, “Should I rent or buy a house?” You’ve probably seen or heard advertisements praising the low interest rates right now. They are correct. Experts predict interest rates will rise slightly in 2021 but most people still expect them to be low by historical standards. These low interest rates often make renters wonder if renting is a smart choice or whether they should buy their home.
It is a serious commitment to buy a house. It is not an easy decision to make. You are responsible for any roof leakage. When you own a property, you have to pay property taxes and insurance. The landlord protects you from most of these costs as a renter. However, equity is not something you can build.
These are the three things you need in order to decide if you should rent again or start to look at buying.
Your financial situation is the most important thing to consider when deciding whether you should rent or buy. This will determine whether you rent or buy.
A monthly payment that is less than the rent costs for a home can make it more attractive to buy one. It can be difficult to calculate your total mortgage cost. It is important to determine what you are eligible for and what assistance options you have.
Start with your credit score when looking at your finances. This will help you decide what type of mortgage you are eligible for. You can get most types of mortgages if your credit score is at least 620. Jumbo mortgages are typically for those over $510,400 and require a higher credit score.
You still have options even if your credit score falls below 620. An FHA loan is the best option for most people. An FHA loan can be obtained with credit scores as low as 500. However, you will get the best options for those with 580 and above.
A debt-to-income ratio below 50% is required to get a mortgage. Add up all of your monthly minimum loan amounts (e.g. minimum payments on credit cards, student loans and 401(k), loans) to calculate this. Divide this number by your monthly pre-tax income. Multiply that number by 100. This is your debt-to income ratio. Let’s take for example that your minimum credit card payment is $100 and you have a $200 car loan. You make $1,000 per month. This would give you a ratio of $100 + $200 = $300/1000 = 0.3 * 100 = 30.
A down payment is also required. FHA loans may have as low as 3.5% in certain cases. Conventional loans are best with 20% down. However, you may be able to get away with as low as 5% in certain cases. There are often assistance programs available at the state level for those who don’t have a down payment. Florida, for example, has several programs that help first-time homebuyers.
If you have all the criteria, start looking at houses online and plugging in numbers to an online calculator. You should seriously consider purchasing if you find a way to do it, including insurance fees, property taxes, and HOA dues (if applicable).
People often ask “Should I rent or buy a home?” because they want to build equity. This is a common reason why people want to purchase instead of renting.
There are also other benefits. You can make things your way! You don’t like the wall’s colour? It’s okay. You can buy a bucket of paint from your local hardware store, and then change it. You don’t like the bathroom? No problem. If you have the money, get another one and a plumber to put it in. It’s incredibly refreshing to be able customize your living area in a way that you like, especially if you’ve been renting for a while.
You can also take advantage of property appreciation by owning a house. Although it is impossible to predict how properties will rise in the future, you can take advantage of appreciation by buying small items to get started.
Let’s take, for example, a $1,000 per month rental. To avoid PMI, the $500,000 home you desire would need a $100,000 downpayment. Instead, you save $20,000 and buy a condo worth $100,000. Let’s suppose you put all of your money into it and then pay it off. The home you want now costs $700,000. This is an increase of 40%. However, the value of your condo has increased by 40%. It’s now worth $140,000. This is still 20% of your down payment ($140,000 = 20% of $700,000.
You can save money by buying things sooner than you wait and allowing yourself to save more for your dream home. You still have enough money to purchase your next home, even with the price increase.
Rent prices can rise. Renters can choose to sell their home and move in to it again. Perhaps the owner decides that the property is worth selling and the new owner does not take care of it.
Renting can lead to these situations. It is possible to find a wonderful situation that doesn’t work 5-10 years later.
This is possible with a mortgage. If you continue to pay the monthly mortgage payments, you will be able live in your home. If you have a fixed loan, your monthly mortgage payments won’t increase (although you may have to make escrow adjustments).
Stability can be a great asset, especially if you have children.
The proverbial “Should I rent or purchase a house?” question is extremely personal. There is no right or wrong answer. There are many benefits to homeownership. Perhaps the best way to think about it is “does there really exist a reason to not buy?” There are many benefits to buying, and it is usually a good idea to buy if you have the financial resources to purchase. Are you still unsure what to do next?
Hey, Mark Ladd here. I am a sports fanatic and have a passion for this. Particularly running is what I love best. However, around 5 years ago I had an accident that changed my life. I can no longer pursue those sporting activities, so I moved my focus on a different approach where I blog about the sports and other areas of life which I have grown to appreciate more since my accident.Click to read on