Buy Now Or Rent Longer? Top 5 Common Questions to Ask Before Purchasing Your First Home.
Choosing whether to buy a home or rent one is never an easy decision, especially if you’re a first-time homebuyer. However, in today’s volatile market, you may find it especially difficult to determine the best time to begin exploring homeownership.
But is renting a better option? Rents have risen alongside inflation and are expected to rise further due to a persistent housing shortage. 2 While homebuyers can lock in a fixed mortgage payment, renters will be subject to rising costs for the foreseeable future.
So, which option is better for you? When deciding between buying and renting, there are numerous factors to consider. Fortunately, you don’t have to go it alone. Contact us to set up a free consultation, and we’ll walk you through your options. You might also want to ask yourself the following questions:
1. How long do I intend to live in the house?
If you own a home for at least five years, you will reap the greatest financial benefits. 3 If you intend to sell your home quickly, a home purchase may not be the best option for you.
It can take some time for the property’s value to increase enough to cover the costs of buying and selling a home.
Even though housing markets can fluctuate from one year to the next, you’ll usually find that a home’s value will endure market ups and downs and increase over time. 4 The more likely it is that you will profit from a property’s appreciation the longer you own it.
Furthermore, if you intend to remain in the house for the duration of the mortgage, you will eventually stop making those payments. Your housing expenses will significantly decrease as a result, and your equity (and net worth) will continue to increase.
2.Is buying or renting in my area a better value?
If you know you’ll stay in one place for at least five years, you should think about whether renting in your area is a better deal than buying.
The price-to-rent ratio for a neighborhood is a useful tool for weighing your options. To calculate it, simply divide the median home price by the median monthly rent. The price difference between buying and renting increases with the price-to-rent ratio. 5 However, keep in mind that this equation only offers a snapshot of the market’s current state. As a result, it might not fully reflect the long-term effects of rising home values and rent increases.
The National Association of Realtors estimates that a typical American homeowner who bought an existing single-family home ten years ago would have accrued about $225,000 in equity while keeping up a constant mortgage payment. 6
Contrarily, someone who opted to rent over the past ten years would not only have missed out on those equity gains, but they would also have
3. Can I afford to purchase a home?
If you decide that buying a home is the better value, you should assess your financial readiness.
Begin by calculating how much money you have in savings. Will you have enough money left over after committing to a down payment and closing costs for ancillary expenses and emergencies? If not, it’s a sign that you should wait until you’ve amassed a larger rainy-day fund.
Then consider how this will affect your monthly budget. Remember that your monthly mortgage payment will not be your only expense in the future. You should also consider property taxes, insurance, association fees, maintenance, and repairs.
Even so, if you make a substantial down payment, you may find that the monthly cost of homeownership is comparable to that of renting. Landlords frequently pass on the additional costs of home ownership to tenants, so it is not always the cheapest option.
4. Am I eligible for a mortgage?
If you’re prepared to bear the costs of homeownership, the next step is to find out how likely you are to be approved for a mortgage.
Each lender will have its own set of requirements. In general, a creditor will look at your job stability, credit history, and savings to ensure you can afford a monthly mortgage payment.
Whatever your circumstances, getting preapproved for a mortgage before you begin house hunting is always a good idea. If you’re interested, please let us know and we’ll refer you to a loan officer or mortgage broker who can assist you.
5. What difference would owning a home make in my life?
In general, you should expect to devote more time and effort to owning a home than to renting one. There can be a lot of upkeep, especially if you buy a fixer-upper or overcommit to a lot of DIY projects. If you’ve only lived in an apartment, you might be surprised at how much time you spend maintaining a lawn.
On the other hand, you might enjoy having your own garden, making HGTV-inspired improvements, or playing with your dog in a large backyard. If you’re a more social person, you might enjoy hosting family gatherings or going to block parties with other dedicated homeowners.