Everyone dreams of owning a home. Since most people start as renters, it is a big decision to go from renting to buying a home.
People need to consider their income, job security, budget, the state of the real estate market, and the location of where they want to live.
Even if you can afford to buy a home right now, it might not necessarily be the best time to do so.
There are advantages to renting a home, just like there are advantages to buying a home. Weigh the pros and cons of renting versus buying.
You can then make an informed decision that benefits you the most regarding your financial well-being and comfort level.
Below are seven ways to help you decide if you should buy or rent a home.
1) Compare the Rental and Purchase Prices in the Area
Most people assume that purchasing a home is more expensive than renting a home. Sometimes, the monthly mortgage payments are lower than the monthly rental payments on houses of equal value in your area.
In that case, it would be more financially rewarding to purchase a home. However, keep in mind that there will be additional costs associated with home ownership such as taxes and utilities.
You can look at the rental and purchase price comparisons with the help of a professional real estate service provider, such as a Newcastle real estate agent.
They can give you a breakdown of the home rental and purchase prices in your local neighbourhoods.
2) Review Your Outstanding Debts
Do you currently have several outstanding loans or debts? If so, then it might not be the best time to purchase a new home.
Even if you have a good credit rating, you need to consider how much money you can afford to spend on a mortgage or home loan each month.
For example, if you are one paycheck away from going broke, it might be better to eliminate your existing debts first.
You can then prevent your credit score from crashing if you lose your job or run into financial difficulties.
Sometimes landlords can be more reasonable than banks and lenders. If you run into hard financial times, your landlord may let you have some extra time to get your affairs in order without reporting you to any credit agencies.
3) Current Family Situation
The number one reason to purchase a home is to accommodate a growing family. If you have recently gotten married or plan to have children, it could be a good time to buy a home. It will give your family more living space and a permanent place to call home.
On the other hand, if you are single or do not have any children, it would be more economical to rent a smaller house without settling down or committing to one location for a long time. You can always change your mind if you ever do decide to have a family.
4) Savings
When you apply for a mortgage loan, the lender will expect you to make a 10% to 20% down payment on the home sales price.
For instance, if you purchase a home for $200,000, you need to have $20,000 to $40,000 in cash for the down payment. Do you have that much money saved?
If you have little to no money saved, then you can forget about purchasing a home. The best you can do is put a down payment on a lease rather than a purchase.
So, consider the amount of money in your bank account before you decide whether to buy or rent a home.
5) Level of Job Security
Do you have job security in your current position? Do you think you will have to move within the next three years? These questions are essential for determining whether to rent or buy a home.
If you do not have job security or
a good-paying job, you should not purchase a home until you do.
However, it must be a job where you will stick around the same location for three or more years. Otherwise, it might not be easy to resell your home for a profit within a short time after purchasing it.
6) Location
Real estate is all about location. If you find a home for sale within your price range, that does not mean you should immediately make an offer to purchase it.
Ask yourself whether the house is in a good neighbourhood or not. Are there grocery stores and modern conveniences nearby?
If you have the money to purchase a home, you need to consider the bigger picture first. Is the house in a location where you would want to live for a long time?
Would you be able to resell it in the future? Think about the location carefully. If you rent a home in a bad neighbourhood, it is much easier to leave when your lease is up than if you bought a home in a bad neighbourhood.
7) Tax Savings
Real estate has annual property taxes that owners must pay. Some homes have higher property taxes than others.
Consider whether you can afford to pay the yearly property taxes on a house you might want to purchase.
If you pay a mortgage with interest, you can deduct the interest charges from your income tax return.
Some people find the interest deductions to offset the extra property tax charges each year. If you have more tax advantages than tax liability to owning a home, buying a home is better than renting a home.