We’ve been taking things a little heavy lately with all those thorough answers to FAQs. But among all that confusion-untangling, some of you first-time buyers may still be left asking yourselves one first, critical question: Am I ready to stop renting and make the commitment of buying a home? To trade that rent payment for a mortgage payment?
The question of renting or buying is always a decision people spend a lot of time thinking about. There are situations where maybe it is not the best idea, but more often buying a property provides a lot more advantages and disadvantages.
If you’re not sure if it’s the right time for you to stop renting and buy, here are a few key questions (courtesy of Denver realtor Joan Cox) to help you decide.
How is your Credit?
As we discussed in our first FAQ blog, your credit score is the first factor you need to look at when thinking about getting a mortgage to buy a home. If you don’t have good credit, everything else in the process becomes a little more difficult.
Call a lender and have your credit pulled, and they can tell you if there are any issues you need to take care of, or that you are good to go. You will be required to submit many documents for them to review your credit. If you do need to take care of things, it’s probably best to wait and try to get your score up first.
Are you planning on remaining in the area for two years?
If there is a chance you will only stay for a year or less in one place, buying a property may not be a good decision. If you stay in a home for two years (out of five years), you can move to another home without capital gains. (Check with an accountant to confirm this or get more details on what the specifics are for your area.)
Do we have enough saved?
If you want to buy a home, it’s better to be able to contribute some of your savings towards the purchase.
You don’t need 20%: There are lenders that do as less as 3% of the purchase price for conventional financing or 3.5% for FHA financing. As we discussed previously, you DO NOT need a 20% down payment, but if you do, this will eliminate the PMI (private mortgage insurance). There are some programs that have grants or gift funds (some that need to be repaid) if you do not have a down payment and closing costs.
Reasons to Buy:
Buying a home gives you equity…
…(in most markets) and after a few years, you will have a larger down payment if you decide to up-size your home. We have seen an average of 10% increases in value for the last 4.5 years.
You don’t get that same sense of equity when you rent. When you’re renting, you’re essentially paying your landlord’s mortgage. They’re getting equity – you’re not. The sooner you buy a home, the sooner your investment can start growing.
It’s the same as saving – the earlier you start, the better off you’ll be. As they say, time is money!
Buying a home gives the homeowner a sense of success.
You OWN a home that you can put your stamp on, change decor, remodel, landscape, to make it yours, without the approval of a landlord. Owning property gives you complete and total freedom to make your house your HOME, really and truly. This is an intangible positive, but it is, at the same time, one of the biggest ones there is.
You can pay the mortgage off, and you own it free and clear. It is YOURS, and you can’t put a price on that.