There is no magic formula to determining when you are ready to buy a home or how much home you want to buy.
Are There Advantages To Renting a Home?
First off, you need to consider the advantages and disadvantages in your current situation as a renter. One of the advantages of being a renter is the fact that you have more freedom to move on very short notice. Now the downside of that thought is the fact that the landlord has control over just not renewing your lease or choosing to raise your rent. But if you are new to your career and you expect me moving two or three times in the next six to seven years, it is time to stay in a rental.
Another advantage of renting, is the fact that the landlord must fix all problems with the apartment or home. The landlord also usually takes care of expenses like lawn care, appliance repair or replacement and such. So if you are just starting out, you may not have that extra money to replace a washing machine or dryer. However the downside in every rental circumstance is that you are not building any equity and you are paying the landlord’s payments for him. In other words at the end of the day you have benefited by having a place to sleep but you end with no real money in a nest egg.
When to Buy a Home
Now let’s take a look at some of the upsides of home ownership. Again first and foremost, you are the king of the kingdom. You can put a nail in the wall and hang family pictures and you can do anything with the home you would like within any restrictions set aside through your HOA and covenants of your mortgage.
Another key advantage of home ownership is a you are locked in the payment for the next 30 years. While rents continue to rise in apartments, townhomes and houses, your payment will stay the same for 30 years. Also keep in mind that should interest rates go down significantly, you can even lower your house payment through refinancing. However chances are if you are renting and interest rates fall, your landlord would have no interest in cutting your rent.
Increasing value from year-to-year is another huge reason to own your own home. Let’s say you bought a home for $200,000 and over the years it appreciates and is now worth $250,000. Over those same years you have paid down the mortgage while the value of the home has gone up. If you put those figures on paper you will see that homeownership can be a major part of your portfolio. You as a person are now worth more economically than you ever would’ve been renting a home. Look at it like this: you have built memories, raised a family, enjoyed the comforts of your own home and all the while you’re home has been increasing in value, while your payments are paying off more of the debt.
So once you have weighed all of the factors and you decided that you would like to pursue purchasing a new home, the best thing to do is to contact a reputable local lending company that can take a look at your financial standing, your credit worthiness, and how much home you can comfortably afford. Keep in mind that you will also need to consider when setting up your budget that the actual cost of the home is only the base. You will also need to consider paying for anything that the landlord used to provide. There will be property taxes, insurance, and private mortgage insurance not to mention possible HOA fees. You have to sit down with your lender and discuss the total cost per month of owning and maintaining that home.
In addition, you and your spouse will need to sit down and discuss possible life changes that may need to take place to make sure that the house payment comes first in your budget life. You may decide that now that you have your own you won’t eat out as often and you’ll save money there. You may consider buying your own push lawn mower and not a big lawn tractor to keep the lawn looking nice. You may cut back on vacations and travel. But remember buying a home should not bring about that much financial stress that it becomes a burden. Simply weigh your lifestyle against how much home is sensible and go from there with the confidential advice of your lender who goes through this process hundreds of times per year.
Do you have a question for Robert? You can submit them here on the Saving Thousands website, or through the Saving Thousands Facebook and Twitter pages.