How to know if you should buy or rent your house

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Buying a home is a huge accomplishment, but it is also a huge responsibility. Understanding all the pros and cons of homeownership is important when deciding it’s time to take the plunge and stop renting.

Sometimes, even after feeling like you’ve saved enough for a down payment, the decision to buy isn’t always that easy, and you may wonder whether you should postpone homeownership for a while. little longer.

First of all, it can be a big financial commitment. Many financial advisers recommend that you stick to the 28% rule: your mortgage payment (including principal, interest, taxes, and fees) should not exceed 28% of your gross monthly income.

And after you’ve made the initial down payment, ideally you’ll be left with something for repairs, upgrades, and furniture, among other expenses. It can all add up very quickly, and if you’re not careful you can end up feeling rich in house but poor in money.

Of course, cost matters when making the decision to rent or buy, but financial advisor Sheryl Garrett says your flexibility should be a priority as well. Here’s why.

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“If there are ifs and ands or buts, you don’t make a commitment to buy. “

It is important to understand how much a commitment buying a house really can be. Not only are you paying a mortgage, but you’re also responsible for home repairs, property maintenance, paying property taxes and homeowners insurance, and more. In fact, according to a Bankrate survey, 21% of millennials regretted buying a home because the maintenance costs were too high.

The mortgage application process is a commitment in itself. Typically, you will need to pre-qualify for a loan before you even start looking for homes. And once your offer is accepted, the process can take months to complete the process, during which you will need to be extra careful to maintain your credit score and avoid spending large sums of money until you close the property. .

It’s hard to feel 100% ready to own a home, and sometimes taking a risk even when you’re intimidated can really pay off. But if you’re feeling nervous about the long-term financial commitment, you might not be ready to buy a home.

“Buying a home as a first-time buyer or as a young person is a new adventure,” says Garrett. “If you’re not 100% sure you want to buy a house, don’t buy a house. It can also be a very emotional process, so if there are ifs, ands and ors, you don’t. you do not agree to purchase. “

“We need to think about flexibility first.”

According to Garrett, flexibility is one of the most important factors to consider when deciding whether to continue to lease or become a homeowner.

“Think about whether you really want to be attached to a home when you have the opportunity to be more flexible. There are a lot of things that can change your mind about where you want to be: the climate, relationships and even the cost of living, ”says Garrett.

The flexibility can be very useful if, for example, you enjoy traveling and want to live in different cities. In this case, it probably doesn’t make sense for you to anchor yourself in a house in one place.

Or maybe you are planning to change careers within a year or two and are ready to grab opportunities in other cities. move for your career when you need it.

Another scenario that can impact where we want to live is the climate. Some people may not be as inclined to live in areas known to have extreme weather conditions – hurricanes, tornadoes, flooding, etc. – partly because insurance can be very expensive. Renting first in these areas can help you determine if this is a climate that you are truly prepared to endure before signing for a mortgage. That way, if you decide the weather is making your city an extremely difficult place to live, you always have the option of relocating elsewhere.

It is also not always a good financial decision to buy and resell a home quickly as there are a number of big costs, from agent fees to capital gains taxes etc. If you want to make sure you’re making a profit (or at least break even), many financial advisers recommend waiting at least five years before selling.

“Don’t rush a big decision.”

“Home ownership is one of the most important financial decisions you’ll make,” says Garrett. “Don’t rush just because interest rates are low or you think you’ll miss out on an opportunity to make money by owning a home.”

Before you decide to buy a home, even if you already have a down payment saved, make sure you cover three essential financial basics: emergency fund with at least three to six months of living expenses saved. A high yield savings account (such as the Marcus by Goldman Sachs Online Savings Account or the Ally Online Savings Account) is usually the ideal type of account to store this money since you will earn interest on your balance. every month even if you are not contributing.

Next, make sure you don’t have credit card debt as it is high interest debt that can really eat into the amount of money you have left each month to save and spend. . If you want to pay off your credit card debt a little faster, you can consider using a balance transfer card with an introductory interest-free APR period. This way, you can hack your balance without paying high additional interest charges. Select has found the Citi Simplicity® card and US Bank Visa® Platinum card to be some of the best credit cards available for balance transfer.

And finally, make sure that you already contribute enough to your 401 (k) account to be eligible for employer match. Buying a home doesn’t mean you have to give up saving for retirement. And not contributing enough for the game means you’re leaving your retirement money on the table.

These steps are, of course, just as crucial even if you prefer to continue renting. Whatever your homeownership plans are, making these good habits can strengthen your financial situation over time so you can feel more confident as you strive for your goals and dreams.

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Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.



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