The age old question for people who are out on their own is whether to rent or to buy. It is a question that requires a good deal of thought and planning since purchasing a home is often the biggest purchase of someone’s life. No one wants to make the mistake of buying before they’re ready because it can cause you a lot of headache and will also end up costing you a lot of money.
So how do you know if you are ready to buy or if you should just continue renting? To me the biggest question is how long do you plan on staying in your next home? If it is for 5 years or more then it may be time to look into the option of buying. When you live in the same apartment for 5 years you are literally giving someone else your hard earned money, often with your rent increasing each year. When you own your home it is like putting money into a savings account every month because you are building the equity in your home, your biggest asset. Your mortgage typically stays around the same price with the exception of increases in taxes which is often very minimal. So, if you plan on staying for the long haul you should continue reading.
The second question is all about your finances. Do you have a steady job? Do you have any money saved or is someone willing to give you a gift to help with a down payment? Do you have “good” to “excellent” credit? While you don’t need all of these things it certainly makes things easier and saves you money in the end.
When you apply for a mortgage on a home, banks typically want to see that you have been employed for at least 2 years with the same company. There are some mortgage brokers that can help you with this factor, if need be, since they often have great relationships with the lenders they work with. But if your job is inconsistent or unpredictable you may want to consider waiting until things stabilize since a home is a serious long term commitment.
A down payment is not always required with the purchase of a home. There are many programs available where you need very little to no money down. However, you should consider the fact that if you do not have money down, you are going to be paying a higher monthly mortgage payment and it will take a lot longer to build the equity up in your home. That is why it is always best to bring something to the closing table. Speak to your lender or mortgage broker about your different options. There are several banks and credit unions that offer a home buying match program. This is a savings account where for every one dollar you put in they match it four dollars. Typically they will match up to $7,500 so you have a great down payment usually within less than a year. If money is tight but you want to bring a down payment to the table, this may be a great option for you. Always remember, the higher the down payment the better the outcome for you in the end.
Finally, the issue of credit comes in to play. Maybe you had a few bad years in college and that is sticking around to haunt you. While it is not impossible to get a mortgage with poor credit, you are less likely to get the best interest rates and will often need to have a higher down payment. You are also more at risk for predatory lending and receiving offers for subprime mortgages. While these may sound like good options on their face, they often have abusive and unfair terms. If it sounds too good to be true, it probably is. Your best bet is to take a year to repair your credit history. Start with going through your credit report. Contact lenders who have derogatory marks and see what you can do to resolve the issues. Often there are errors on these reports but you would never know unless you look and take action. Don’t wait for your credit to fix itself.
And of course I saved the best for last. Once you have considered everything else you should start thinking about what you want from a home. Where do you want to live? How many bedrooms do you want? How many bathrooms? Do you want a big yard or a small piece of land with low maintenance? Do you need a garage or a finished basement? Make a list of your all the things you would like in your home but be realistic. Often time’s people want more than they can afford. Talk to a realtor and see what you can get with the budget you and your lender have come up with. If you can’t get what you want with the budget you have you can always wait and save more money. You don’t want to settle for less just because you are anxious to buy.
If you are ready to buy I’d love to help find the perfect home for you. If you still feel that renting is your best options, I can help find apartments/homes for rent too! Many people don’t realize that realtors can help with this process as well as home buying and selling. Happy hunting!