If you are thinking twice about continuing to pay rent, you may be considering whether now is the right time to buy a home. Making the leap from renter to homeowner isn't as simple as deciding your no longer want to pay rent. In reality, you need to weigh the pros and cons of homeownership in the context of your finances and your future.
"There's a notion that we have in our heads that we have to buy a house and that it's somehow wrong to rent," says a financial adviser with Ameriprise. "The reality is that it's not true for everyone and there are positive points to renting and to buying."
Renting offers the benefit of being able to move whenever you want to take a job in another part of the country or even just in a different location within the same city. It's also nice not to have to pay for maintenance. If your air conditioning breaks down, your landlord has to pay to replace it, not you.
Homeowners not only need the money to make repairs, but they must make time to maintain their property. Even a newer home requires at least some maintenance; an older home may require a bigger budget for repairs.
An important factor in deciding to buy your first home is how long you plan to stay in the area. If you only plant to stay for three years, you should probably rent. It's best to stay in your home at least seven years to recoup the cost of buying and to build equity.
Buyers who opt for a fixed-rate mortgage know their principal and interest payments will remain the same, although property taxes and homeowners' insurance premiums can rise.
You need to get your finances in order and give yourself time to improve your credit score if you need to, because your score not only allows you to qualify for a loan but it also dictates your interest rate.
Would-be buyers need to estimate a comfortable mortgage payment for themselves rather than relying on the lender's loan qualification process. If you think you can afford a $1,500 per month mortgage but your rent is $1,100 and you haven't been able to save, you may need to rethink that. Take a hard look at your income, to see if it's stable and rising, and to look at your assets to make sure you have enough for a down payment and for reserves in case of an emergency.
While the Consumer Financial Protection Bureau's new "Qualified Mortgage" rules allow for a debt-to-income ratio of 43 percent, Behnam thinks that's too high because it's based on your gross income. You should base your budget decisions on your net income rather than your gross income.
Potential buyers should think in the long term about the affordability of a home. You need to look down the road to make sure your income will match your needs for the house but also for other expenses such as college tuition and retirement savings.
Tampa Bay Times