Buying your home can seem like a good idea, or at least an inevitable step in the pursuit of adulthood. But is it worth the commitment? You’ll need to have some deep discussions with your partner, or maybe just yourself. Before you go any further down the road of home ownership, take some time to explore all the options and think about what renting can do for you.
We’ll go over everything you need to know about owning a home vs renting one. We’ll also discuss pro’s/cons for both renting and buying your own home, as well as when each option might be more convenient.
So what would you say is the right choice for you?
1. How Much Money Do I Need?
This is one of the most common questions families have about buying a home, so let’s look at some numbers. Median home values are about $190,000 nationally, but that number can vary widely depending on where you live.
If you’re in an area with good job opportunities and low median home values ($190,000), you may find it hard to justify the cost of buying a home. If you’re considering saving up for a down payment on a more expensive property or moving into an area with higher market value, there are different ways to structure your loan so that you don’t need all the cash right away. Check out the mortgage calculator to see if you should use a fixed, low-interest mortgage or a loan with a lower interest rate than you could get on your existing credit.
2. What’s the Average Cost of Homeownership?
If we just stick with the national data, housing costs in 2009 were very slightly lower for those who purchased a home than those who rented. The average monthly mortgage payment was $902 for homeowners, compared to $1,074 for renters.
3. How Much Can I Save Up?
The biggest determining factor in whether you should buy or rent is how much you have saved to put towards your down payment or closing costs. A good rule of thumb is to make sure you can put at least 20% down, which is the minimum required for a conventional loan. If you don’t have 20% or more in savings, you’ll need to find a mortgage broker that specializes in low-down payment mortgages.
4. How Will My Homeownership Plans Affect My Credit Rating?
Renters are known for having lower credit scores than homeowners—and it’s not just because they don’t have as much money invested in real estate . Homeowners who don’t make their mortgage payments on time or who are delinquent on other bills can end up damaging their credit. While it typically takes years of good behavior to build a strong credit history, one bad foreclosure or bankruptcy in your credit report can severely damage your score.
If you decide to buy a home in the near future, focus on keeping your credit record as clean as possible by paying your bills on time and keeping an eye out for identity theft. When you do need to take out a home loan, make sure you shop around for the best rates and consider asking a trusted family member or friend to co-sign for you.
5. How Much Can I Afford?
It’s easy to compare the cost of renting and buying a home, but there are other considerations beyond how much you can afford. Your budget is important because it will affect how you buy, where you live and how long you’re willing to stay in your new place.
6. What’s the Difference Between Renting and Owning?
Ownership gives you the freedom to do what you want with your property, but it also comes with some financial responsibilities that renters are not required to deal with (such as maintaining the yard). There are also many costs that renters have no way of covering, such as property taxes.
7. What are Some Ways to Save Up for a Down Payment on a Home?
While it’s possible to make up the difference between what you need and what you have with a high-interest or short-term loan, it’s better to use other methods to save up your down payment. Here are some ways you can get there:
You can also simplify your financial life if you can convince your roommate(s) to chip in on the down payment and additional monthly costs.
8. What Does Homeownership Look Like in 10 Years?
Home ownership can be expensive, but it’s also an opportunity to create a more stable life situation. For many people, home ownership means a lower monthly mortgage payment, lower taxes and better debt management than renting. But some people buy homes because they have no choice over their housing, and it may take forever to find another apartment to rent. If your job changes in 10 years and you aren’t able to sell your home or move back in with your family for at least a short time, you face the possibility of being trapped by high housing costs.
9. What are My Other Options?
Although you have a lot of options if you’re not ready to buy a home, many people make the decision right away. If you are unsure about whether ownership is right for you, there are other ways to own real estate that can be more affordable for some of us:
- Buying a Home with Rent-to-Own or Lease-to-Own Programs
- Buying a Home with 1031 Exchanges
10. How Much Can I Afford to Spend on a House?
Considering what we learned about the cost of renting vs buying, it’s important to know how much house you can afford before you start looking for your first home. If you don’t know where to start, follow these steps and get pre-approved for a loan:
So should I Buy or Rent?
Now that we’ve covered the basics, it’s time to choose between renting and buying a home! If you’re ready to buy, take a look at your income and savings situation, and consider whether homeownership makes sense for you. Now that you know everything from A to Z, move on over to find out how much it costs to rent a condo in your city. If you have any questions about buying vs renting or real estate in general, get in touch with us at Xander Mortgage. We’re here to help!