It’s never easy to decide whether to buy or rent a house, especially if this is your first time buying a house. The best time to explore homeownership may be particularly hard to pinpoint in today’s whirlwind market. Below are 5 questions to answer before purchasing your first home.
As a result of the pandemic, home prices reached an all-time high.1 Now, with higher mortgage rates, some would-be buyers wonder if they should wait until the price or rate drops.
Renting a home seems like a better option, but is it? As a result of housing shortages, rents have also ballooned along with inflation.2 And while homebuyers can lock in a fixed mortgage payment, renters are at the mercy of these rising costs.
What is the better option for you? When it comes to buying versus renting, there are many factors to consider. It’s a good thing you don’t have to do it alone. We’d be happy to walk you through your options during a free consultation. The following questions may also be helpful to you:
Really consider your options before buying a home.
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#1 of Before Buying a Home: 5 Questions to Answer
How long do I plan to stay in the home?
If you plan to sell in a short period, buying a home may not be the best choice for you.3 A home may take time to appreciate enough to offset the cost of buying and selling it.
Generally, you’ll find that a home’s value will ride out the ups and downs of a market and appreciate over time.4 The longer you own a property, the more likely you are to benefit from it.
If you plan to stay in a neighborhood for several years, buying a home can be a better option than renting. As you pay down your mortgage, you’ll not only benefit from appreciation but also build equity – and you’ll have more security and stability.
Keeping in mind that you will no longer have to make mortgage payments if you plan on staying in the home for the life of the loan. This will result in dramatically lower housing costs and an increase in equity (and net worth).
#2 of Before Buying a Home: 5 Questions to Answer
Is it a better value to buy or rent in my area?
Consider buying versus renting if you plan to stay put for at least five years.
You can evaluate your options by dividing the median home price by the median annual rent price in a neighborhood. The higher the price-to-rent ratio, the more expensive it will be to buy than to rent.5 However, keep in mind that this equation only provides a snapshot of the current market. The long-term effects of rising home values and rent increases may not be accurately accounted for by this model.
The National Association of Realtors estimates that a typical U.S. homeowner who purchased an existing single-family home 10 years ago would have gained roughly $225,000 in equity.6
Renters, on the other hand, would have not only missed out on those equity gains but would also have seen U.S. rental prices increase by around 66% during the past decade.7
Renting may seem like a better deal today, but buying a home might be a better investment in the long run.
Are you ready to compare your options? Contact us for a free consultation. If you are looking for the best value in your neighborhood, we can assist you in interpreting the numbers.
#3 of Before Buying a Home: 5 Questions to Answer
Can I afford to be a homeowner?
To determine whether buying a home is the best value, you’ll need to assess your financial situation.
Taking a look at your savings is the first step. After the down payment and closing costs are paid, what is left over for ancillary expenses and emergencies? If you don’t have a rainy-day fund, you might be better off waiting.
Make sure you have plenty in saving for a rainy day after the down payment and closing costs.
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Consider how this will affect your monthly budget.
Keep in mind that your monthly mortgage payment won’t be your only expense in the future. The cost of maintenance, repairs, and property taxes may also need to be considered.
The monthly cost of homeownership can be comparable to that of renting, especially if you make a significant down payment. Since landlords often pass on the extra costs of owning a home to tenants, home ownership may not always be the cheapest option.
You will also be the one who stands to benefit from your investment, even if you are responsible for the home’s maintenance. A major home upgrade, for example, increases the value of your home as well as making it more pleasant to live in.
Don’t let financial uncertainty stand between you and your dream of home ownership. Call us today to discuss your goals and budget. Let us help you determine if you can achieve your homeownership dreams by giving you a realistic assessment of your options.
#4 of Before Buying a Home: 5 Questions to Answer
Can I qualify for a mortgage?
When you’re ready to and have settled on buying a home and take on homeownership expenses, you’ll want to find out how likely you are to qualify for a mortgage.
Each lender will have its own criteria. To determine your ability to repay your mortgage, a creditor will look at your job stability, credit history, and savings.
A lender, for example, wants to see evidence that your income is stable and predictable. You may need to provide additional documentation if you’re self-employed. You should also compare your monthly debt payments to your income with lenders to ensure you aren’t overextending yourself financially.
Additionally, a lender will check your credit report to ensure you have a history of making your payments on time. Your chances of obtaining a competitive rate are generally better the higher your credit score.
Pre-approval for a mortgage is always a good idea before you start house hunting, regardless of your circumstances. Please let us know if you are interested, and we will recommend a mortgage broker or loan officer who can assist you.
|Want to learn more about applying for a mortgage? Reach out to request a copy of our report: “8 Strategies to Secure a Lower Mortgage Rate”|
# 5 of Before Buying a Home: 5 Questions to Answer
How would owning a home change my life?
Aside from long-term financial benefits, you should consider how homeownership will affect your life before you begin the preapproval process.
You should expect to invest more time and energy when you own a home than when you rent. Upkeep can be a bit of a hassle, especially if you buy a fixer-upper or overdo your DIY projects. For example, if you have only lived in an apartment, you may be surprised at how much time it takes to maintain a lawn.
The chance to tinker in your own garden, make HGTV-inspired improvements, or play with your dog in a big backyard might appeal to you. If you’re a more social person, you might enjoy hosting family gatherings or attending block parties.
In general, owning a home allows you to do whatever you want with it – even if that means painting your walls fiesta red one month and eggplant purple the next.
As with the home, the choice is yours.
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HAVE MORE QUESTIONS? WE’VE GOT ANSWERS
In your lifetime, you will make many important decisions, including whether to buy or rent a home. By comparing your options based on real-time market data, we can help you make the right decision. No matter where you are in your decision-making process, please feel free to contact us for a customized consultation. If you have any questions, please let us know. We are happy to answer them.
The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.
- NPR – https://www.npr.org/2022/07/14/1109345201/theres-a-massive-housing-shortage-across-the-u-s-heres-how-bad-it-is-where-you-l
- Bankrate –https://www.bankrate.com/mortgages/5-year-real-estate-rule/
- Federal Reserve Bank of St. Louis –https://fred.stlouisfed.org/series/MSPUS
- National Association of REALTORS – https://www.nar.realtor/blogs/economists-outlook/price-to-rent-ratios-by-state-from-2014-2019
- National Association of REALTORS –https://www.nar.realtor/blogs/economists-outlook/single-family-homeowners-typically-accumulated-225K-in-housing-wealth-over-10-years