The debate of renting vs buying is one of the biggest decisions a person or family will ever make. If you’re currently renting an apartment or even a home, then you are aware of the steep costs associated with renting. According to recent studies, Americans spend 30% of their monthly income on rent, which is basically the same amount you would budget to own your own home, and rents are continuing to rise at an alarming rate.
Now obviously all of us would prefer to own homes, but one of the biggest road blocks is the down payment. For most of us it’s difficult to know when you’re in a suitable situation to take on such an expense. So timing is everything when it comes to making move like this.
First let’s go over liquidity, meaning the amount of money you have at your disposal. Generally, those who have fewer debts than others are considered liquid enough to afford a down payment. For example, your car is payed off or nearly so, if you have student related expenses those are taken care of. Essentially a significant portion of your finances are not being budgeted to various debts you may owe. Your financial position should tell you whether you are ready to make that move or not. First thing, you need to get a mortgage pre-approval via Lynn Pineda
The difference between being ready and thinking that you’re ready
You have been looking forward to a place you could call yours for ages now. So It’s understandable that the decision to buy a home is at times nagging at you. Most renters find themselves making instinctive decisions, only to find that they were never ready to make the move when they did. There are many financial commitments that come with owning a house, and it is important that you keep them in mind when making your final purchase decisions.
Home inspections will be required. So choosing the best home inspector you can is really important. However, just as important is knowing what home inspection repair costs a buyer shouldn’t make that can kill your deal! Then there are always hidden costs you might not be aware of, and the financial responsibility of taking care if a home needs dedication. You therefore need to be very sure about what you want before diving in. So know in advance the costs homeowners pay that renters don’t and how to prepare for them.
How do your finances affect your moving plans?
Some of us move around a lot, so it doesn’t make sense, financially speaking, to buy a home in one area, only to move to another city or part of the country within the year. In addition, places such as New York are too expensive for homeowners, and moving out of the area is implausible due to work and family demands. So take into consideration where you want to buy your home and how this will impact you with respect to work and your possible need to remain flexible. You may even consider buying a smaller home you can rent out, produce residual income on a monthly basis, and still be able to move from one area to another, as needed. In this way, you can build a Rental Property Portfolio and “start accumulating long term wealth”.
How much of your monthly income should you pledge towards mortgage repayment?
According to experts, if your mortgage costs 30% or a little less of your monthly income, then that is a feasible rate. You want to live comfortably and enjoy the trimmings of modern living without having to sacrifice too much to your mortgage payment. Think about the percentage you would be comfortable paying as part of the mortgage. The industry has no set percentages, and some lenders are flexible enough to allow you to pay out what is within your comfort zone. Here’s where it helps to have a very well rounded understanding of your general monthly expenditures.
Homes with down payments of less than 20%
Some of us think that when the percentages are too low, that there’s a catch in there somewhere. I encourage having a keen eye when going over the final paper work however, remember it’s perfectly plausible for numbers to vary based on a quite a few variables so be analytical and thoughtful when reviewing. Keep in mind that this 20% is going to rise steadily if the value of the home is too high. At the same time, AVOID going too low on the percentages, because that would translate to high installments, balance is key. Here is a great first time home buyer guide that explains the mortgage process.
To rent or to buy: where is the financial edge?
Again it all really depends on where your finances are at this particular point in time. It makes sense to rent if you think that the down payment on a new home is going to be exacting. Just keep in mind, you are paying your landlords mortgage, instead of your own while building equity. And it makes perfect sense to look around for a home when you are sure you can make the sacrifice without veering too far away from your comfort zone. But there are ways to put little or no money down when buying your first home.
Leveraging on your savings
The beauty with savings is that they give you a lot of flexibility in life. If you save more, then you are in a position to buy more. At the same time, putting up more money upfront ensures that you enjoy less installments and preferable rates in the long-term.
Moving from renting a home to owning one is a big decision. Find a mortgage professional and pick their brains about your ability to make such a transition. Check your credit score and be wary of any additional costs associated with home ownership. And do not forget to lean on the expertise of a great real estate agent to point you in the right direction.
Wendy Weir Relocation – Real Estate Agent, Relocation Specialist, Birmingham, MI
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