A home is more than just a place to rest your head. Choosing the right one can be a difficult task, especially when you mix your finances into the equation. It can be even more challenging to decide whether you should rent vs. buy your home. There are plenty of factors to consider when considering whether to invest in real estate or stick with renting. There are a number of factors that must be taken into consideration before making such a decision.
1. Low Credit Score & Home Ownership
A score that is any lower than a 620 will not be beneficial to you when it comes time to purchase a home. If this is the case, it is advisable to spend some time working towards improving that score. The benefit in doing so can save you thousands of dollars a year in interest payments.
2. Job Stability or Relocation & Home Ownership
Job security is one of the biggest concerns when it comes times to buy a house. If there is not already an emergency fund in place, it is advisable to build one before taking the leap. Not only that but most lenders will require that several months of reserves are built up before lending to an applicant.
Furthermore, if you aren’t sure where you are going to be in the next several years, it is probably best to wait on a big purchase such as a home. Switching jobs is looked upon as unstable to many lenders, and your rate may consequently be higher because of a recent job switch.
Additionally, if you are at a high risk of being relocated due to your job or other factors, buying into a permanent residence is unwise. A property needs to appreciate at least 10% in order to breakeven in the sale of a home.
3. Maintenance fund & Buying a Home
Not everyone is cut out for home ownership. This is especially true when it comes to maintenance and upkeep of a home. Homes take a lot of work and money and if you don’t have the time or know how to devote to it, you may not enjoy owning. It is recommended to have at least 5% of the value of your home saved for maintenance. A perk of renting is that when something goes wrong, you don’t have to go through the hassle of fixing it yourself.
4. Cost of Buying a Home
It is not always wise financially to own vs. rent. There are many factors that go into owning a home, especially location, that can make renting way more attractive than ownership. Projecting out costs for a few years after the initial investment is recommended when considering the purchase of a home. It is also important to consider taxes in these types of analysis. Free tax estimators available online are great tools too assist you with with this type of analysis, There are many opportunities for saving that need to be considered in any analysis.
Consulting a CPA may be a good idea if home-ownership is on the horizon.
Choosing where to live obviously contains many factors that require some thought. Although owning a home is something to be proud of there is no fault in waiting to own until you are in a good place to do so. Preparation and planning are two things that cannot be stressed enough when any major financial decision is made and deciding on where you live is no exception.