Kathleen Fitzgerald, REALTOR®'s Blog
If you're renting a nice house, condo, or apartment, there's a good chance your monthly rent check is almost as much as a mortgage payment. Perhaps you've realized this and have been asking yourself why you're contributing to someone else's nest egg, instead of your own! If that sounds familiar, you may be ready to take the plunge into home ownership.
The other half of the equation is whether you're financially ready, and that would depend on a variety of things, including your credit rating, your debt-to-income ratio, and your ability to make a sufficient down payment on a new home. Although a 20% down payment is a desirable target to aim for, there's often a lot of flexibility on how much you're required to put down on a house.
One of the main reasons a 20% down payment is desirable is that it takes you "off the hook" for having to pay monthly private mortgage insurance (PMI). The second advantage of making a substantial down payment is that it reduces the principal amount of your loan, which, in turn, lowers your monthly payments even more. However, if you're ready to become a home owner, but can't afford a 20% down payment, you can often eliminate PMI payments earlier than scheduled by making extra principal payments. The bank or mortgage company you decide to work with can fully explain their policies and what your options are.
If you are interested in making the transition from renter to home owner, now's a good time to start talking to loan officers. If nothing else, you'll be educating yourself on the intricacies of buying a home. Working with an experienced real estate agent is another way to learn the ropes, so to speak, when it comes to the home buying process.
Other than the financial benefits of building equity in your own home, there are also a lot of practical advantages. If you're currently a renter, for example -- especially in an apartment building, duplex, or townhouse -- you're probably tired of the lack of privacy and the unwelcome noises you can often hear through walls, floors, and ceilings.
Becoming a home owner brings with it a pride of ownership and the ability to plant trees, bushes, and gardens on your own property. Depending on what's available in your price range, you can also enjoy your own private deck, screened in porch, or patio. Options for the kids (if you have them) include swing sets, sand boxes, and room to play backyard sports or run through a water sprinkler during the hot weather.
If you feel like you are ready to take the plunge into home ownership, the first step is to make lists of your requirements, your preferences ("wish list"), and financial resources. The next step is to find a good real estate agent to start showing you homes that fulfill your needs and check off as many items on your wish list as possible!
Renting is a great short-term housing solution for millions of Americans each year. And, for those who don’t want the responsibilities of homeownership, it can also serve as a longterm lifestyle for those uninterested in equity. However, if you do hope to someday purchase a home, there are several reasons it is one of the best financial decisions in the long run.
Finding out when is the right time to buy a home is a difficult question to ask yourself. You’ll have to consider your current budget and future financial goals, your employment situation, and personal lifestyle preferences.
In today’s post, I’m going to discuss several of these considerations to help you determine if now is the time to buy a home or if you should continue renting for the time being.
Mortgage rates through history
One of the features of homebuying that is largely out of your control is the historical average mortgage interest rates.
While your specific rate will be based on things like your income and credit score, as well as the type of mortgage you choose, real estate trends will also have an impact on the rate that lenders use.
Rates are, on average, lower in the last five years than they were throughout the 80s, 90s, and 00s. With rates under 4%, these levels are unprecedented in the last 3 decades. However, last year did see a slight increase to 4.1%.
What are your long and short-term plans?
Many people who are considering buying their first homes are more concerned with whether it’s financially feasible than if it fits into their life and career goals.
Before you start shopping for houses and contacting lenders, it’s a good idea to sit down with your family or significant other and start thinking about a timeline.
First, are you prepared to live in your next home for 5-7 years? This a good baseline for the amount of time you need to stay in a home to make it worth the costs.
Next, would you have better career or education prospects if you were to move elsewhere in a few years?
Of course, these questions are not objective--you may never know for sure which is the best decision. However, having the conversation is vital to moving forward.
Are you prepared for the extra workload?
Homeownership is work. Aside from just having to mow the lawn and take out the garbage, you’ll also be responsible for repairs and maintenance that previously your landlord was required to do.
The good news is you can learn most things on YouTube. However, some repairs can be costly and require calling in a professional. Just like owning a car, homeownership has it’s associated upkeep expenses.
However, with that added responsibility comes independence. You can paint and change your home how you see fit without worrying about losing a security deposit.
Start considering these questions now and in due time you’ll have a better understanding of your current and future goals. This way, you’ll be able to choose the best possible time to buy a home.