There's a lot of conflicting advice about whether it's smarter to rent or buy. Some say renting is like throwing money down the drain when you could be building equity in your own home. Others argue there are better ways to invest your cash, and you're giving up valuable flexibility. "We typically make big decisions like whether to rent or buy with emotion and defend them with logic, which is why it's so easy to make a case for either, but there are actually several considerations that can make the decision to rent or buy much easier.
Here are six signs you're ready to be a homeowner.
1. You actually want to own a home. Enjoy gardening and fixing things up around your place? That'll make homeownership easier. From coordinating maintenance and repairs to dedicating weekend time to yard work and other projects, owning a home requires a big time investment on top of the financial one. Be sure you're ready for that responsibility. If you'd rather be able to call a landlord to handle issues when they arise, you may be better off renting for now.
2. You've saved up for a down payment. After deciding to take the leap, the next step is to save up a 20-percent down payment. This helps you avoid private mortgage insurance, which is typically equal to 1 percent of the purchase price (and paid annually). "If you can save more than 20 percent, even better. Taking out a smaller mortgage means you'll pay less in interest over time. If homeownership is a near-term goal, you can take advantage of your flexibility as a renter by finding a roommate or downsizing to a cheaper place to accelerate your savings.
3. You have been working on increasing your credit score. Your FICO score is the first thing a mortgage lender will check when seeing if you qualify for a loan. While there are many factors involved in qualifying for a loan, your credit score is the most important. FHA loans have the lowest credit requirements of any mortgage, often referred to as bad credit home loans. In order for the FHA to insure a mortgage loan the borrower must have at least a 500 credit score with a 10% down payment. If you have a 580 or higher FICO score you will just need a 3.5% down payment. Getting approved for an FHA mortgage with a 580+ score is much more likely than if your score was below 580.
4. Your budget can handle all the extras. A mortgage is just one home cost to budget for — there's also taxes, insurance, maintenance, and possible homeowners association fees. Generally, mortgage lenders want to see all these costs add up to no more than 28 percent of your income. You can get estimates on sites like Quicken Loans where it shows you can comfortably afford home costs and other living expenses, as well as repairs that may come up. Don't have that much wiggle room? Consider looking at homes with lower price tags or work on upping your income and savings while you're still renting.
5. You've found a neighborhood you'd like to live in for years. If you'll only live in a particular area for a year or two, renting is likely your best bet. "Having the option to get up and leave with minimal strings attached is very appealing. Renting can also be a smart way to test the waters, learning what you like and dislike about different neighborhoods. When you're ready to put down roots, and plan to stay for at least five years, buying's back on the table. Just make sure you thoroughly research the area first: If you have kids, are you happy with the school district? Is the neighborhood safe? Are the home prices increasing generally? You can find detailed information on crime rates and school rating on sites like City-Data.
6. You can't rent a similar place for significantly less. If you can rent in your desired area for much cheaper than a mortgage and other housing costs would set you back, you may benefit from renting a while longer and saving or investing the difference in monthly expenses. Not only can this build your net worth in the meantime, but it allows you to test-run your budget. When you do buy one day, you'll already know you can comfortably handle the uptick in expenses.
At Help U Rent we love having you as a Tenant but we understand being a lifelong renter is not a life goal for many people. Anytime during your lease when you believe you are ready to own a home contact us to get the process started. Normally the home owning process takes anywhere from 60-120 days for a first time buyer so five to six months before your lease is expiring is a good time to start. Here is a basic credit score and interest rate chart so you know what to expect in advance.
579 and lower – If you are approved for a mortgage with this low of a score you will have a credit score as much as 2% higher than the current lowest rate.
580-619 – You can expect an interest rate as much as 1% higher than the lowest rates available.
620-679 – With a credit score in this range your interest rate will be slightly affected. Rates could be .5% higher than someone with great credit will receive.
680-739 – This is the range most homebuyers are at, your rate will not be affected much at all in this range.
740 and higher – You will be offered the best rates mortgage companies have to offer.
Also if you are a Veteran you qualify for many special programs including zero down loans.