Anyone who lives on their own must decide if they want to continue renting or purchase a home in the future. Many people view renting as a more affordable option, while others consider buying to be an investment that can pay off in future years. To determine what the best option is for your financial situation, there are a few factors to consider.
Consider Your Savings
The amount of money you have set aside in your savings account will determine if you’re in good financial standing and can afford a house. You’ll need to save an average of 10 to 20 percent of the loan amount for the down payment. This doesn’t include paying two to three percent of the loan amount for the closing costs which covers inspection fees, title insurance, and origination charges. You’ll also have to pay extra if you choose to use a real estate company to help you find the right home to buy and negotiating the purchase price of the property.
Calculate Extra Expenses
When determining if you should purchase a home, it’s important to consider the extra expenses that come with owning real estate. Although you may be able to afford the mortgage, you’ll also be responsible for paying homeowner’s insurance, HOA fees, utilities, landscaping, and property taxes. Leading Edge Real Estate and other companies can help you compare price ranges and locations so you get a home you can afford even with extra expenses.
Review Your Debt
Although you may earn a significant amount of money throughout the year, your debt is one of the main factors that determines your financial standing. The amount of debt you’ve acquired over the years due to school loans or credit cards can make it difficult to secure a home loan and a low interest rate. Lenders are more likely to approve borrowers who have a debt ratio of less than 38 percent of their income.
You may be better off renting a home if you don’t have any money set aside in an emergency fund. You’ll need to have that extra cushion in your savings for unexpected repairs that are needed on the home. Those who need to deplete their bank account to purchase a home are better off renting.
Although there are many differences between renting and owning a home, your financial situation will determine which option is best for your current situation. By evaluating your financial standing and taking different factors into consideration, you can avoid common mistakes that are made, and have peace of mind with where you call home.