Should I rent or buy? This is an age-old question that countless have asked themselves. But as many quickly realize, the answer isn’t always clear-cut. Advocates for buying commonly describe renting as “flushing money down the toilet.” And if you’re fed up with rent increases, fickle landlords and every other headache that comes with living in someone else’s property, buying may seem logical.
However, there are many factors to consider when you buy or rent. Get advice from family and friends, and then decide what’s best for your situation.
What is Healthy Credit?
When applying for home loans, lenders want more than just a good credit score. While a FICO score of at least 620 is a vital part of getting approved for a home loan, loan officers also measure the overall health of your credit life when considering the worthiness of your application.
High income doesn’t automatically qualify you for the best loans. Bankers also consider your debt to income ratio. This number represents the number of outstanding credit balances you currently have when compared to how much money you make. A higher debt to income ratio means you have borrowed a lot. If you run into financial trouble, you may have to default on some of your loans. That makes you a bad risk.
Those with high levels of debt may find it better to continue renting until some of their existing accounts are paid down. You will be able to score a better loan package with lower debt levels.
Cash On Hand
In 2015, it was estimated that nearly 28 % of Americans had no money in their savings accounts. Emergency cash reserves are your safety net. When times get hard, the money in your savings account can help you make it through to better days. Buying a home requires a large upfront cash investment for the down payment, fees, and other costs. If you put all of your money into a single purchase, what will you rely on when an unplanned event occurs?
Spend more time beefing up your cash reserves before committing to a home purchase. Saving more money also means you can offer a slightly larger down payment, which can make the difference in tough negotiations.
Where do you plan to be in the next 5 – 10 years? If you’re not sure, it might not be the time to buy. The stability that homeownership offers can be a drawback if you plan to travel, continue your education, or do other things that could disrupt your income or living situation. Renting lets you be more flexible.
Renting is also a good idea if you’re moving to an unfamiliar town. It may take a while for you to understand the unique features of your new area. Renting gives you the opportunity to compare and contrast available housing and find the perfect property.
Are You Ready?
Homeownership is freedom and security. It is also a responsibility. When the plumbing breaks, ceilings crack, or the basement floods, you have to handle it. Beyond emergency situations, routine jobs like painting, yard work, and other maintenance activities can eat up your time or cost you a small fortune. Renting simplifies the way you live. Busy individuals who rather spend their time achieving their goals should consider renting a while longer.
Current Housing Market
Overall, the US housing market continues to show phenomenal growth. Popular areas continue to see prices rise as buyers snap up choice properties. First-time buyers and those with smaller budgets may have a hard time competing with more financially established investors. In markets with too little inventory and too many potential buyers, renting can be a sound financial decision.
The benefits of homeownership are well-known. However, renting can be a wise choice in many situations. Consider your lifestyle, goals, and abilities before you decide to buy.
For more finance tips, click here.