Before you become a first time homebuyer, it’s a good idea to stop and ask yourself a few questions. Depending on your circumstances, renting for a few more years may be the sound financial move to make.
How Long Do You Plan to Stay in the Home?
If you’re taking out a 30-year purchase mortgage but you only plan on staying in the home two or three years, you’re probably better off not purchasing. Why? Because originating a mortgage involves a down payment and closing costs. Even in the best case scenario, it will be at least five or six years before you have built up enough equity in your home to make owning more profitable than renting.
How Fast Are Your Rent Prices Increasing?
If you plan on staying in the area for a while, and your landlord raises the rent by several percentage points each year, you will benefit financially from becoming a first time home buyer.
How Fast Are Home Values Increasing?
If the home values in your area are static, or worse, declining, it’s probably not a good idea to invest at this time. You may be unable to sell the property when you’re ready to move, or you may get back considerably less than what you put into it.
Can You Find a Home You Like?
This may seem like an obvious question, but some people are so eager to buy home, any home, that they don’t stop to think about where they actually want to live for the next several years of their life. Before you take out a purchase mortgage, take some time and think about features in the house that matter most to you. If you have young children, for instance, you’ll want to consider the school district the house is in. If you use mobility equipment, you’ll want to make sure there aren’t too many stairs. Don’t commit your hard-earned money until you find a house that you truly like.
Are You Handy?
One cost that many people forget to consider when it comes time to buy home is the cost of repairs. If you rent, repairs are covered. If you buy, it will be up to you to pay to fix that leaky faucet or purchase that new air conditioner. If the home you are purchasing is an older home or a fixer-upper, and you’re not very good with fixing things, you may end up sinking more money into home repairs than the house itself is worth. Again, in this case, continuing to rent might be your better option.
Should you be a homeowner? Only you can answer that question. There are circumstances where buying a home is a very sound financial move to make, and circumstances where renting is probably your best choice.
