A home is more than just a place to rest your head. Choosing the right one can be a difficult task, especially when you mix your finances into the equation. It can be even more challenging to decide whether you should rent vs. buy your home. There are plenty of factors to consider when considering whether to invest in real estate or stick with renting. There are a number of factors that must be taken into consideration before making such a decision.
via initialyourhome.com
1. Low Credit Score & Home Ownership
A score that is any lower than a 620 will not be beneficial to you when it comes time to purchase a home. If this is the case, it is advisable to spend some time working towards improving that score. The benefit in doing so can save you thousands of dollars a year in interest payments.
2. Job Stability or Relocation & Home Ownership
Job security is one of the biggest concerns when it comes times to buy a house. If there is not already an emergency fund in place, it is advisable to build one before taking the leap. Not only that but most lenders will require that several months of reserves are built up before lending to an applicant.
Furthermore, if you aren’t sure where you are going to be in the next several years, it is probably best to wait on a big purchase such as a home. Switching jobs is looked upon as unstable to many lenders, and your rate may consequently be higher because of a recent job switch.
Additionally, if you are at a high risk of being relocated due to your job or other factors, buying into a permanent residence is unwise. A property needs to appreciate at least 10% in order to breakeven in the sale of a home.
3. Maintenance fund & Buying a Home
Not everyone is cut out for home ownership. This is especially true when it comes to maintenance and upkeep of a home. Homes take a lot of work and money and if you don’t have the time or know how to devote to it, you may not enjoy owning. It is recommended to have at least 5% of the value of your home saved for maintenance. A perk of renting is that when something goes wrong, you don’t have to go through the hassle of fixing it yourself.
4. Cost of Buying a Home
It is not always wise financially to own vs. rent. There are many factors that go into owning a home, especially location, that can make renting way more attractive than ownership. Projecting out costs for a few years after the initial investment is recommended when considering the purchase of a home. It is also important to consider taxes in these types of analysis. Free tax estimators available online are great tools too assist you with with this type of analysis, There are many opportunities for saving that need to be considered in any analysis.
Consulting a CPA may be a good idea if home-ownership is on the horizon.
Choosing where to live obviously contains many factors that require some thought. Although owning a home is something to be proud of there is no fault in waiting to own until you are in a good place to do so. Preparation and planning are two things that cannot be stressed enough when any major financial decision is made and deciding on where you live is no exception.
I’ve been thinking about buying a home for awhile now but I live in NYC and that market here is so up and down that I don’t know if I should make that investment. But I feel like I’m throwing money away while renting.
Yeah. Sometimes, it also depends on your location.
I agree. I live in the suburbs so owning can be a bit less expensive
The market is very volatile in NYC. Let us know what you decide!
Buying your own home is not really investing in real estate as your home doesn’t earn any money – except when you sell it. In fact it costs money to maintain. All the same there are conditions when it is better to rent even if you have the option. These include portability – you can move very much more quickly – and rents may actually be cheaper than buying if you haven’t got the deposit or the interest charges are high.
While many landlords will charge the ‘market’ rent which is based on the current value of the house, some are prepared just to cover the cost of their much smaller mortgage and depend on capital appreciation. With the recent problems. such rentals are probably difficult to find and agents will always advise landlords to charge the full commercial rent.
It also depends on lifestyle, which you alluded to with your portability comment.
Renting versus buying has been a debate I’ve been having for a while. I see some of the home prices and know I could save money with a lower mortgage payment and use the saving to build up the maintenance/emergency fund. The freedom to move always winds up winning out though. I don’t know if at some point my job will require me to relocate. It has already happened once and moving out of an apartment was a pain. I don’t even want to think of the hassles a house would bring.
You could buy a condo or something starter sized? But it’s not as cut and dry.
I wrote today about how I bought my first home at 21 because I didn’t want to waste my money renting. My mortgage at the time was less than what it would have cost me to rent although I had a decent downpayment on the flat. I think it’s personal and many people have no desire to buy and that’s ok.
21 is definitely young to buy a home. So true!
Relocation is the reason I’m not going to buy anytime soon. I want to be able to pick up and move across the country within a few weeks. Maybe in a few years I’ll give up that need to be flexible and buy a home.
That’s a common theme, I think. Who doesn’t want that flexibility?
I would prefer owning a home because I like to have more freedom and more privacy. Freedom to renovate and to alter the interior or design.
That’s why we own a home. We also are homebodies so we appreciate owning.
We decided to buy only after renting for awhile and getting a chance to learn the area we were looking to move to. By renting we were able to save up enough funds for a down payment. Having a family we felt it was time and are very happy we did.
That’s what we did, too.
Job stability is a big factor. Owning a home just isn’t worth it if you’re not going to be there for a long time.
I agree. We’ll be in our house for 6-10 years but plan on building one one day.
It is always better to rent a house if you are not sure of your job stability and have not yet decided where you will be settling finally. Owning a home definitely is a big thing and it also involves maintenance which draws both your time and money
So true. Thanks for commenting Rita.