Yesterday, I offered my take on when it might make sense to rent a home vs. buying. Today, Miranda offers her two “cents” on the topic.
One thing that the housing market crash taught us is that not everyone is ready to buy a home. We are so used to thinking of home ownership as part of the American Dream that we sometimes forget that it is impractical for some people to buy a home. However, if you are in a stable financial position, and you have prepared ahead of time, it can make sense to buy. You can use an online calculator to help you make that decision. Here are some things to think about as you consider whether or not you are ready to buy a home or keep renting:
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- How long you will be in the home: It makes sense to buy if you know you will be in your home for at least five years. Most financial experts agree that it can take five to 10 years for any financial benefits of home ownership to emerge. Additionally, it helps to plan to stay in your home for a while so that you can ride out downturns in the real estate market.
- Your financial stability: Home ownership is a big commitment. It only makes sense to buy a home if you have a reasonably stable job and if you know that you have other resources to fall back on. These resources can include a sizable emergency fund, a life partner with a job or an alternative source of income. You need a financial back up plan.
- Large down payment: Mortgage lenders are requiring down payments now that they have seen the folly of providing anyone a loan with zero down. But that’s not why you should save up for a sizable down payment. It makes sense to buy when you have enough saved up to reduce the amount you are borrowing, eliminate the need for PMI and qualify for a lower mortgage rate (saving you money over the life of the mortgage).
- Good credit: If you have poor credit, it does not make sense to buy a home. You are better off renting, and working to get your finances in order and your credit score higher. The lower your credit score, the more you will pay in interest. On top of that, a good credit score often (but not always) indicates fiscal maturity. Someone with good credit, who can get a low interest rate, may find it makes sense to buy a home.
- Understand the costs of home ownership: Many people buy homes without understanding the costs of home ownership. It only makes sense to buy a home if you know what these costs are, and you are prepared to pay them. These can include maintenance, upkeep, HOA fees, repairs, utilities, and other expenses.
Renting Vs. Buying- All Comes Down to Your Finances
In some cases, you are better off renting while you organize your finances, and figure out what you will be doing for a while. Before you buy, make sure you that you can truly afford the home, and run the numbers. There are some people who rent for years and years, perfectly happy to avoid some of the hassles that come with home ownership, and to invest money they would be paying on home expenses for larger returns. Be sure to figure out how much the tax break will really help you, and make sure that you are truly in a position to buy before you take the plunge.
This is a guest post Miranda Marquit is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. Miranda is not affiliated or endorsed by LPL Financial. The opinions voiced in this material are for general information and are not intended to provide specific advice and/or recommendations for any individual.