After years of saving, watching the market, and thinking about the next steps, you might ask yourself, “Should I rent or buy a house?”
There are certainly pros and cons to each life path. Those still on the move may want the flexibility of a rental. They are not beholden to the outside of a short-term lease.
Those looking to settle into a property and invest in it truly are more likely to buy a home.
These are the top factors to consider when looking to purchase.
Finances are a huge part of buying a home. While most look at their situations (which is smart!), prospective home buyers must also consider what rates look like in the housing market.
It is wise to look at the average cost of homes in your area and how expensive home loan rates are.
Mortgage rates fluctuate daily but are currently expected to stay between 5 and 6 percent for 2022, a higher rate than usual.
You must fully understand how the rate mortgage you end up with will affect your monthly mortgage payments, in turn impacting the lifetime of your loan.
Next, look inwardly at finances. Are you in a good place financially to take on this type of debt?
Figuring out your debt-to-income ratio is key. Also known as DTI, the Federal Housing Administration uses a 43 percent ratio standard as a guideline for mortgage approval. This determines whether or not you’ll be able to make monthly payments.
This means that all your home-related expenses (mortgage, insurance, property tax, and more) plus your regular debt payments, when totaled, should not exceed more than 43 percent of your monthly gross income.
It would help if you also considered how much you could afford in terms of a down payment, which will help with your monthly mortgage payments.
Paying at least 20 percent of the home’s price will help avoid paying private mortgage insurance, a cost typically added to your monthly mortgage payment.
A large down payment isn’t necessary, but it is helpful if it’s something you can afford upon purchase.
Buying a home is a great way to build capital. With every monthly payment you make, you are putting equity in your home.
You’re also putting equity in with any major upgrades or renovations you do to your property.
This sets you up to a price point for selling higher than what you initially paid for the home.
This means you also need to consider how long you want to be in the home you buy. Do you picture this as a starter home you’ll live in for a couple of years before selling, or would you like it to be the home you stay in for a very long time?
If you plan to live in the home for more than a decade, odds are you’ll be able to refinance your mortgage to a lower rate, which saves money in the long run.