You’ve decided that it’s time to stop throwing money away on rent every month, and think about buying a place of your own. But are you really sure? Before you start searching for that perfect dream home, it’s wise to determine if purchasing a home is truly the best financial option. Buying a home isn’t only about a down payment and a mortgage. There are some factors to consider before you move forward with making one of the most important purchases of your life.
Consider total housing costs
Buying is attractive because it is an investment that could also reduce your expenses. However, figuring out your monthly housing costs isn’t as simple as comparing your monthly rent and utility payments to a mortgage payment. Being a homeowner comes with added expenses like a down payment, utilities that your landlord might cover as a renter (like trash and water), home maintenance, homeowners’ association fees, and property taxes. The benefits of owning a home are that you’ll know what you’re paying in a mortgage every month (whereas rents could increase), and it’s an investment that will likely increase in value over time. If you need help weighing which option makes the most sense, consult with a financial advisor. And don’t discount rent-to-own homes as a choice.
Realistically assess your financial stability
The big question is can you afford that dream home? You don’t need a close-to-perfect credit score and a 20% down payment to buy a house, but should you put less than 20% down and jeopardize your credit by paying for a home that you can’t really afford? If you’re building (or rebuilding) your financial standing — or you don’t have enough savings for a down payment, you might want to stick to renting while you save, save, save, and pay off your debts. When you’re financially stable enough to negotiate a good deal on a home — or market conditions are too ideal to pass up, buying may be the way to go.
Look at the market
The finances might align but is the market in your favor? Real estate markets are constantly on the move, with conditions that are better for buyers, sellers, or balanced for both. Unless you are ready to buy immediately, you’ll want to consider current market conditions as well as trends, to strategize the best time to buy and the renting versus owning a home equation.
Know where you want to be for the long-term
Putting that money down on a home is not only an investment in property, but in your decision to stay put. Are you planning on spending the rest of your life in a certain neighborhood, or at least, the next decade? While the opportunity to build equity is a strong argument for homeownership, it only makes financial sense if you intend to stay at least five to seven years. This allows plenty of time for your home’s value to increase and for you to pay that mortgage. If you intend to move within a year or two, renting is the wiser choice. But if you are set on putting down roots, buying that home may be the way to go.
The decision about whether to rent or own is a complicated one, but with some research, time, and planning, you’ll make a decision that you won’t have any doubts about.