Deciding between renting a home or buying a home is not always as simple as it may seem. There are important factors to weigh out before making a financial decision such as this. If you’re not sure which way to go at this point in your life, Sun-Surf Realty in Emerald Isle, North Carolina can help. Here are 10 things to know before deciding which living situation is best suited for you.
1. What are your life-stage goals?
First, it’s important to evaluate your current life situation and how much it’s likely to change in the immediate future. Where are you in your life and what are your personal, financial, and family goals? Knowing what you want in these areas helps to determine your path. Begin with the end in mind. If you happen to be going through any major life changes, then give yourself some time to decompress and reassess before making any large financial decisions or commitments.
2. Are you currently paying off debt?
If you subscribe to the Dave Ramsey method of home buying, paying off debt is the first thing you want to do before even considering a major financial purchase like this. Even if you don’t agree with him, paying off or at least paying down debt is a smart move. Focus on your consumer debt, student loans, and any other monthly payments that will affect your debt-to-income ratio. Ideally, the sum of your future house payment (including principal, interest, property taxes, homeowners insurance, PMI and HOA fees) should amount to no more than 25% of your take-home pay.
3. Does your job require you to move?
If your job can potentially relocate you or your job position is not very secure, committing to buying a home doesn’t make much sense. You don’t want to have to deal with the hassle of selling a home while transitioning to a new location or position. Or perhaps you’ve moved to a new area and want some time to get to know different neighborhoods before settling down somewhere. Sure, you can buy a home and then sell it within a few years, but the costs are hardly worth it. Renting is likely a much better option for you.
4. Do you prefer flexibility or stability?
In other words, are you planning on putting down roots in your community or are you craving more flexibility? If you feel certain you’ll stay in a home for at least 5 years, buying a home could make sense. That’s because it could be a good fit both financially and emotionally—you can put personal touches on your home and really make it feel like it’s yours. However, renting is the better option if you prefer to be more nomadic. (Also, refer back to #1 of this post.)
5. Do you have time to research and plan?
You need the time to research your home buying options and plan ahead. It’s not wise to make this decision on the fly. Getting to know the local neighborhoods, exploring your buying options, and looking at homes on the market with a local real estate agent are just a few of the many things you should do to get familiar with the area before you buy. You definitely need time to do these things, so if you don’t then it’s probably not the best time for you to start the home-buying process.
6. What can you afford?
Whether you decide to rent or buy, you absolutely have to know what you can afford. Calculating a rent payment is much simpler than calculating a home payment since there are many more factors to consider with the latter option: a downpayment, mortgage payments, taxes, HOAs, maintenance and more are all part of owning a home. Getting yourself in a good financial position is the first step, and then realistically knowing what you can afford is the next. Getting pre-approved for a mortgage lets you know exactly what you can and cannot afford to buy.
7. Have you used a Rent vs Buy calculator?
Yes, there actually is a calculator for that! It’s a good way to compare the costs of both of your options. Go ahead and enter your location and a few other necessary numbers like what your rent payment is, what your target home price is, how much of a down payment you can pay, and your income—then let the numbers get crunched for you. You’ll get an instant overview and comparison of your two options. You can find a Rent vs Buy calculator here.
8. Can you manage home ownership?
Can you afford to be responsible for home repairs, maintenance, and the other demands of owning a home? And do you have the time, energy and skills to deal with them? There’s a lot more involved when it comes to owning a home than renting one. Home repairs, maintenance, and lawn care consume more time than one might realize, so it’s not just about being able to pay the taxes and other fees associated with home ownership. You also need to know that can you afford to pay for home maintenance and repairs or have the time and ability to do them yourself. Either way, they will need to be done.
9. Have you weighed the risks?
Most financial decisions involve a risk-versus-benefit consideration. Although you can build equity when buying a home, there are some financial risks. For one, you could lose money if there’s a downturn in your local real estate market. Or if you sell your home sooner than you want, you may not be able to make up for what you spent in closing costs or renovations. On the flip side, renting means you won’t have the opportunity to build equity like you would with buying. Your rent could go up at any given moment. You’re also at the mercy of your landlord, such as being asked to move out or having to deal with maintenance requests being deferred. Weigh the considerations carefully before making either decision.
10. Have you talked with an expert?
There isn’t always a clear answer to the question of whether to rent or buy. Depending on your life situation and finances, the answer might change over time. No matter what decision you choose, it’s crucial you make an informed decision based on your financial situation and lifestyle. It helps to discuss your considerations with someone you trust whether it’s a family member or friend who has experience in these types of decisions. Or better yet, talk with experts in real estate and in the financial field so that you can better understand the options that might be best for you. There’s no need to go it alone.
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