Everyone around you seems to be buying or looking at homes, and you may be wondering, Should I rent or buy a home? Is it time? Am I ready? There are pros and cons to both renting and buying a home, and it can be difficult to decide which is best for you. Here are a few considerations to help you decide.
Should I Rent or Buy a Home? Ask These 7 Questions
1. Will I Stay in the Same Location?
Your location is one of the most important factors when it comes to deciding whether to rent or buy a home. A home is a long-term commitment, while renting is year-to-year. To buy a home, you should plan to stay in the same location for at least five years. If you like where you’re at, buying a home can give you a sense of putting down roots, and can save you money in the long run. If you don’t like the town or city you’re in, you see yourself moving to a different career or company, or moving for another reason, you should probably continue to rent.
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2. Do I Have Stable Income?
Income may be the most important factor when it comes to buying a home. It will be difficult or impossible to get a mortgage if you cannot prove that you have stable income. If you are employed, do you have stability at your job and do you see yourself staying there? If you are self-employed, is your income relatively steady, or is it prone towards swings? If your income swings, are you able to put money away during peaks? If you’re living with a partner or spouse and depending on their income for all or part of the rent or payments, is their income also stable? Finally, what income do you need for the house you want in your area?
3. Do I Have Decent Credit?
The better your credit, the better the interest rate on your home loan. You don’t need perfect credit to get a home loan, but there are credit minimums on home loans. For an FHA loan, you’ll need a credit score of at least 500 (with a 10% down payment). For a conventional loan, you’ll need a credit score of at least 620, and you’ll get better terms if your credit is better. If you’re not there yet, take some time to improve your credit score as much as possible before you buy a home.
4. Do I Have a Down Payment?
While you can purchase a home with as little as 3.5% down, you’ll pay less month-to-month and you’ll pay substantially less long-term if you put more money down. With a low downpayment, you’ll have to pay mortgage insurance, also known as PMI, monthly, and you’ll probably get a higher interest rate as well. With 20% down, you can avoid PMI. If you’re concerned with the monthly expenses of buying vs renting, your downpayment and PMI will play an important role.
5. How Much Debt Do I Have?
Your existing debt will factor into the mortgage that you can obtain, but existing debt will not necessarily prevent you from getting a mortgage. Most lenders require that your existing debt should not exceed 43 to 45% of your income. It’s also important to do your own calculations and make sure you have enough income for your everyday expenses as well as your debts.
6. Am I Ready for Home Maintenance?
In an apartment or a rented home, your maintenance is generally done for you, however you will be responsible for this yourself in your own home. Do you have the time and can you save a bit of extra money for home repairs and maintenance? You’ll need extra time and funds for day-to-day things like lawn maintenance, as well as some money saved for maintenance, repairs and replacement on big items like the roof and furnace.
7. What Kind of Future Do I See?
None of us can predict the future, but we can try to make future plans based on what we would like to see in the short- and long-term. Do you want to have children in the next five or ten years? Then a house may be a good choice. Do you see yourself in a big city or traveling the world? Then you may want to keep the flexibility of renting. Ask yourself what your ideal future looks like, and how you can best achieve it. This way, regardless of which option is cheaper or which is a better investment, you’ll feel good about your decision.
Think about these questions carefully as you consider whether to rent or buy. If you’re ready for home ownership in Greater Lansing, start your search with Home Finder Pro.
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