Conventional wisdom says it’s cheaper to rent than own, but it also says that buying is always smarter financially. The truth is somewhere in the middle, and as usual, there’s no one size fits all.
Buying a home is a major, life-changing investment. As such, the decision shouldn’t be made rashly, and because it’s a long-term investment, you may need to plan years ahead to make it a reality. If you think you might want to buy a house within the next few years, or if you’re renting and wondering if you should make the jump, here are some considerations to get you started.
Your Financial Reality
If you have no money for a down payment and closing costs, then even if buying is cheaper, you won’t be able to do so. Here are some considerations before moving forward in the decision making process.
How’s Your Credit?
Do you have good credit? If you want a mortgage, you should. If yours isn’t as good as you’d like, it may be smarter to continue renting while you build up better credit.
Do You Have Debt?
While some debt like car payments or student loans tend to be facts of life, if you have a lot of consumer debt, large child support payments, and other expenses, you may not be in a good position to buy yet. It could impact your ability to get a good mortgage if you have a high debt to income ratio, even if you’d be able to make the mortgage payments.
Remember, you don’t just want any mortgage, you want one with good terms that you’ll be able to pay. Consider paying down some of your outstanding debt first.
Do You Have Savings?
We already mentioned this but it bears repeating. If you have no savings, don’t try to buy a home yet. Build up a down payment. It doesn’t need to be a full 20% of the expected home value, but at least 5%, and the more the better. But also save for closing costs, which could be up to an additional 5% of your home value. And lastly, make sure you have an emergency fund. You don’t want to default on your new mortgage because you don’t have any savings and your work hours suddenly got cut. In addition, you’ll be paying for your own maintenance and repairs now, so make sure you have a bit of a cushion.
Is Renting Cheaper?
Sometimes! It depends on where you live, the type of house you want, and how you answered the questions above. But generally speaking, no. Two things to consider about buying is that you’re building equity when you make your mortgage payments, and that the interest you pay is tax deductible. On a month-to-month basis, a mortgage might even be cheaper depending on the aforementioned factors.
Should You Buy A House?
Okay, your financial reality is good, your mortgage would be less than your rent, and you are so ready. Should you take the plunge? Here are the non-financial factors you still need to consider.
What’s Your Life Stage?
While the “relationship escalator” and general idea that you progress through life a certain way is largely a myth, there’s often a reason that people wait until they’re married to buy a house: by that time they are settled in their careers and won’t need to move to be with the person they love.
If you think you may need to move within the next five years, renting may make more sense. Selling a home is sometimes as costly as buying one.
Are You Handy And Responsible?
If you don’t know a Phillips from a flathead, homeownership may come with a certain struggle. You’ll be responsible for your own repairs, and being able to do minor ones yourself can save you a good deal of money. Homeownership is a huge responsibility; you need to make sure to set up and pay for your own utilities, and you’ll need to keep up with the yard yourself year round (yes, shoveling). You’ll have to handle disputes with your neighbours on your own. If the idea of having to do all of that yourself makes you break out in hives, consider renting. Alternatively, you could look into buying a condo with very inclusive maintenance fees.
Do You Like Where You Live?
Does the current apartment you are in meet your needs? Don’t buy a house because you’re dreaming about a future that doesn’t exist yet, unless you are financially ready to do so and it makes sense. If you are comfortable where you’re at, it’s okay to stay there.
Are You Buying A Home?
If, after all that, you’ve decided to take the plunge, congratulations! You’ll want to protect your investment with mortgage life insurance, designed to keep your family from having to default on the mortgage in the sad event of a premature death. 20/20 Mortgage Life Insurance is easy to qualify for, allows you to name your beneficiary, and travels with you from lender to lender no matter how your home-owning journey progresses. Contact us Today for more information!
