Are you tired of paying rent with no gain in your net worth? Perhaps you’re looking to the obvious next step – buying a home. Homeownership is an investment and can be a wise move that can give you security and a sense of pride. But this doesn’t mean it’s the right step for everyone. It’s important to look at your personal situation and decide if this is the right move for you. Here are some things to consider.
How long will you be staying?
If you’re looking for flexibility or a short-term situation, renting is probably the best option. When you buy, you are locking in to a longer-term commitment that can make it harder to leave. If you plan on staying in the same house for at least 3-5 years you might consider purchasing a home. That should be plenty of time to recoup the closing costs and develop some equity.
How much do you have saved?
There are some big expenses that come with buying a home. Like having a significant amount saved for a down payment and closing costs. For a down payment, aim for 20% of the total cost of the home. While Valley offers programs that let you buy with a lower down payment, you may end up paying private mortgage insurance (PMI) and may have less favorable terms. There are also closing costs, which are due at signing and typically range from $4,000 – 7,000. If you don’t have enough savings prepared for these costs, it might be better to continue renting while you build up some more cash.
Are you worried about your job?
Owning a home is a big investment and a much longer commitment than a typical 12-month lease. You will be expected to pay the monthly expenses and upkeep until you sell the house. If you have any reason to question your current employment situation, or are living paycheck to paycheck, it’s probably not the right time to buy. Think about renting until you can solidify your position and savings.
Consider the extra costs
Both renting and buying come with extra costs that you’ll need to consider. When you rent, you lose out on building equity and on potential tax deductions, which is an opportunity cost. When you buy, you can build equity and gain value. You may also be able to deduct your mortgage interest and property taxes. But don’t forget about the other monthly costs associated with owning. In addition to your mortgage payment, you will need to pay homeowner’s insurance, property taxes, regular maintenance, and possibly PMI.
Are you ready for the upkeep?
As a renter, you may be used to calling the landlord when something breaks. Both small and large issues are fixed, with no impact on your budget. But when you own your own house, you will be responsible for those additional costs of upkeep. The average homeowner spends $170/month on normal repairs. That doesn’t include the big things like a/c and roof repair. When you are considering this decision, make sure to budget your time and money for home maintenance.
The softer perks
It’s important to make sure you are in a financially comfortable position, but that doesn’t mean you should forget the softer perks. If you value the hassle-free maintenance of renting, add it to the list. Or perhaps you are tired of having restrictions on your style and décor options. If you have a family, you may value the long-term stability that buying can offer. While these shouldn’t outweigh the financials, they are important considerations not to ignore.