There are many reasons to buy a house right now. Low unemployment, low interest rates, and escalating rental prices all combine to make purchasing a home sound like a good idea. However, home ownership is a big commitment. Should you rent or buy? Decide after asking yourself these seven questions.
- How Stable Is My Job?
Being able to pay your monthly mortgage payments is essential to owning a home, and that means a steady job. Do you feel comfortable in your current job? If things are going well where you work, you’re receiving positive reviews and meeting your goals, those are signs that it’s stable. Also look at the health of the company. If sales are down or people are getting laid off, you may want to rent for a bit longer. If the business is progressing well, your job is most likely secure, and it may be time to buy. - How Fat Is My Savings?
Paycheck-to-paycheck living is not conducive to buying a house. You will need a cushion in case you must make emergency repairs. Houses also require investments in their upkeep periodically, like new roofs, carpet, and appliances. If you’ve socked away three to six months of your take-home pay in a savings account, you’re on the road to being ready for home ownership. A skinny savings account is evidence you should stay where you are, cut some expenses, and build your savings before embarking on the purchasing journey. - Am I Already Carrying Debt?
A bit of debt doesn’t rule out home ownership. You just need to make sure you can meet your current bills AND cover the costs of a house. Being weighed down with debt is another story. Realistically look at all your debt, from student loans and credit cards to car and personal loans, and see how much of your pay is left over. Keep renting if the amount is barely enough to cover your monthly rent. Think seriously about buying, however, if you would be able to pay your mortgage, insurance, and taxes with what is left after your bills are paid. - Can I Raise a Down Payment?
Buying a house vs. renting depends heavily on the down payment you can afford. Many loan programs require 20% of the home price as a down payment. Other mortgage options, such as an FHA loan, require much less. There are several benefits of paying as much down as possible on your home, including smaller monthly payments and possibly being able to dodge expensive mortgage insurance. A hefty amount of money available to pay down is a good step toward deciding to buy. A small amount, or no money to pay down may mean you need to rent for a bit longer. - What Does My Credit Report Look Like?
Your credit report and credit score play big roles in qualifying for a mortgage loan. Pull your credit online and look at it closely. Dispute any errors you find. If you have paid late, get and stay current on all your bills. You need to also tackle any maxed-out credit cards by taking action to pay them down. If your credit is less than impressive, spending six months to a year re-building it is a smart move. A clean credit report and high score can be the green light to start the purchasing process. - Can I Fit It into My Budget?
Look at your finances and lay out a plan. One of the biggest renting vs. buying myths is that if your mortgage payment is the same amount as your rent, you’ll be fine. That’s not always true. Homes require insurance, taxes, repairs, and renovations that can be quite costly. Figure out estimates for all these extra expenses and see if they fit in your budget. If so, congratulations, you’re ready to afford your own home. If not, renting for the foreseeable future is the best move for you.
And, finally, ask yourself… - Am I Settled Enough to Own a Home?
Home ownership requires a significant amount of responsibility. If you want to move in the next year or so, don’t want to mow your yard or hire some to do it, and aren’t interested in putting down roots, owning a house may not be for you. Being ready to decorate how you want, plant flowers, and decide on the updates you want to make means you’re more likely to be ready to take the plunge.Dealing with the demands of home ownership isn’t for everyone. Even if it seems all your friends are doing it, that doesn’t automatically make it the best financial and personal decision for you. Think about your specific situation, and ask yourself these questions about your preferences and your finances. Once you’ve given it deep thought, you’re sure to make the best choice for you.