Should I Rent or Buy a House?

buy-or-rent

Before making the plunge into homebuying, are you ready to make the huge financial jump?  Consider these three factors.

1.  Downpayment.  At least 20% is the preferred lump sum that you need to satisfy creditors in order to approve a traditional 30 year mortgage plan.  Its not easy to come up with $100,000.  But, if you plan ahead and create a monthly savings plan, you can reach this pivotal financial benchmark that allows you to finally throw your weekend barbecues in your new backyard.  You may already be ahead of the curve, and through your diligence you’ve secured a sizable pot for a one time spending that will change your life, but you’re still on the fence.  In that case, it is in your best interest to keep saving, which I think will always be your best option for the rest of your financial life.

2.  Monthly mortgage payments.  This is where the real tradeoff between buying and renting happens.  Think about all the monthly rent that you pay that goes down the drain without any additional benefit then the month of living that it affords you.   Monthly mortgage payments increases your equity in your property which you keep forever. Furthermore, having the ability to grow your equity gives you some flexibility as well.  For example, the ability to re-finance your mortgage in order to get cash to be used on a future down payment for a second property such as an investment property, is a great option for homeowners to have.  While you can assume these are advantages, there are inherent risks associated with financial pitfalls that can damage the borrower and creditor.  Nevertheless, you must prove to a lender that you can pay off your loan balance, such as gainful employment measured by security and income, high credit score ratings, and anything else thats income related thats boosts the lenders’ confidence.

3.  Additional expenses.  Insurance, HOA, Property tax, and regular maintenance piles up.  As a homeowner, you essentially are responsible for your property, and which requires preparedness to protect the value of your investment.  All the work you do to upkeep your house is entirely hands on, whether you do it yourself or if you choose to outsource it, you as the owner bear all the responsibility.

buying-renting-both-have-upsides

For some people with rewarding jobs, buying a house at the right time could be the next logical step.  But for others who are in limbo may need to examine things more carefully.  Perhaps what’s really holding someone back from buying a home is the lack of commitment.  After all, every lease contract expires, while at the same time making any kind of sacrifice to a buy a house may not be the most important thing on your mind until the time is right.  As we see home prices sky rocketing, and trying to figure out how much down payment you need to realistically afford a house, it can be a turn off.  But then again, at some point in whatever life stage you’re in, it might make sense to stop seeing your hard earned money go to waste.  To pursue financial dreams, it does take disciplining, especially when it comes to saving.  So, while it may not make sense now, you could be well on your way 3 or 5 years down the road when things look upwardly.

 

 

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