Home Buying a home When should you stop renting and buy a home?

When should you stop renting and buy a home?

by Danny Margagliano
It’s time to stop renting and buy a home.

As much as renting comes with a lot of flexibility- not having to worry about mortgage payments and being able to move whenever you want- the idea of renting forever isn’t appealing to many. When thinking about the future, many people picture a future where they have a home with a white picket fence and a yard, and not having to worry about giving half of their monthly income to the landlord. Buying a home is also a big part of achieving the “American dream.” Nonetheless, just because you want to buy a home doesn’t mean you are ready for that. 32% of home sales each year are to first-time buyers and the percentage goes up every year. If you are wondering whether you should stop renting and buy a home these are the factors to consider:

Does your rent keep going up?

Not everyone is lucky enough to live in a rent-controlled apartment. In many instances, landlords are free to increase the rent whenever they feel like. However, it will be frustrating if you cannot anticipate the percentage of your income that will be consumed by housing costs in the long-term. Consequently, that will make it difficult for you to plan your finances.

Being told that your rent has just gone up isn’t something you’ll be looking forward to. The end of the year will also bring you much anxiety as you will be wondering what the landlord will decide concerning the rent. If your rent keeps going up while mortgage rates remain low then it’s time you considered buying a home instead of being a renter. You can also try the rent-to-own option if it’s in your favor.

Attractive mortgage rates

Interest rates for home loans keep on changing. If they are incredibly attractive then that’s the best time for you to buy a home. Remember that they won’t stay low forever and the sooner you take advantage of that opportunity the better for you. They can be revised pretty quickly hence the need to act fast. Once they go up you’ll have no way of telling when they’ll drop again. Thus, you’ll have to decide to move from being a renter to a homeowner quickly.

Are you good at managing debt?

Lenders are out to make money but that doesn’t mean they’ll give loans to just anybody without considering the risk. Lenders give much attention to the amount of debt you have and how well you have been managing that before they decide to approve or reject your mortgage application. Ideally, you need to have a debt-to-income ratio less than 43%.

You can calculate your debt-to-income ratio by adding up your total monthly debt and dividing it with your gross monthly income. Pay down any balances on your credit cards to make your debt history attractive to lenders. You don’t even have to pay off all the debt. You just have to pay them down to the point where your DTI looks attractive and then you can use the rest of the amount to build your emergency fund.

You have finally decided where you want to settle

Not everyone will have figured out where they want to settle during their teenage or early adult years. It will be a big waste of money and even frustrating to keep on moving unless you are renting. Moving when you are a homeowner will require you to wait until you have sold the house to fund the purchase of the next one. Remember the moving costs as well. It will be an expensive affair if you are selling your home every year. It’s better to wait until you are sure of where you want to live for the next 5 or 10 years and then make the purchase. By the end of a decade or two, you’ll even have enough equity in the home to make a profit even if you decide to move.

Real estate investments will bring in more profits if you wait for several years. Lenders also like knowing your job history before giving out a mortgage loan. If you are always changing jobs every year that won’t look good on your mortgage application. You want to show that you have a stable and steady job which means you won’t miss any mortgage payments.

You are tired of helping someone else pay his/her mortgage 

The money you deposit into your landlord’s bank account every month goes towards paying his/her mortgage. You can be using that money to pay for your mortgage instead. If you are ready to take that step then you should stop renting and buy a home. With every mortgage payment, you’ll be growing equity in your home. Consider it as an investment. However, you shouldn’t be buying the home solely for investment purposes. Remember that there are risks with all investments. Thus, the main reason for buying a home should be because you want to be a homeowner. If this is your main motivating factor then you can stop renting and purchase a home.

You can afford to save for an emergency fund

You shouldn’t be using all the money you have to pay for the mortgage. You need to be financially stable enough to put some amount in an emergency fund. Remember that being a homeowner also means taking responsibility for any repair work or renovations required in the property. When you are renting, all the emergencies will be paid for by the landlord – a faulty air conditioner, a burst pipe or when the refrigerator breaks down. These will be your financial burdens to bear once you become a homeowner. Thus, ensure your emergency fund is enough to cater to that when the need arises. If you are confident you have enough money to take care of that without defaulting your monthly mortgage payments you can go ahead and buy a home. You should build your emergency fund before buying the house rather than doing it after.

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