Buying a home, especially our first, is one of life’s proudest accomplishments. However, owning a piece of property that we can call our own home is no small endeavor. Every timeline is different based on your own life journey, so don’t stress it if you’re purchasing your first home at 40 while others bought theirs at 25. Making an informed choice on when to buy is actually more helpful to you in the long-run. Knowing when it’s better to buy versus rent a place is essential to your life. From finances and expenses to location and home size requirements, there is a lot to consider before diving headfirst into buying a home, especially in the midst of a global pandemic.
If you’re going back and forth between the ideas of buying versus renting, consider these three key factors before securing what’s best for you.
1. Purchasing power is real estate gold
Understanding your level of purchasing power is essential to whether or not you can purchase (and afford!) the home of your dreams. There are various factors that play into your purchasing power including credit score, amount of money in your savings accounting, down payment savings, debt to income ratio and payment history on major debts such as past mortgages, credit cards, car loans and rental payment history. When determining the amount you are pre-approved for, a lender will look at these factors to determine whether or not you have a financially healthy backing to allow you to purchase a home. In this same process, the lender will provide you with the amount of loan you will be allowed to borrow for your new mortgage. If you are in sound financial health with a steady work history and high credit score, purchasing a home may be the best option for you.
On the flipside, If you are on the lower end of the spectrum, when it comes to purchase power versus your dream home list, renting may be the best option for you until you are able to bring your purchasing power amount higher by lifting your credit score and securing enough money in savings. This doesn’t have to feel like the be all end all option for you. Continue to strive for a home that belongs to you and during your rental period, focus on cleaning up your credit and saving money for your down payment. By prioritizing your goals and making a list of steps to get there, you can accomplish what you need to in order to buy the home you love in the near future.
2. Location is everything
Are you happy in your current city? Do you love the location, amenities and all the area has to offer you? Do you work in the area and feel as though you have planted roots that will evolve over time here? If you answered, “yes” to any of these questions, then this may be the place that you want to purchase a home. When considering these questions also think about the long term. Is this a place you can see yourself for the next 5 years? 10 years? Or longer? If you plan to raise your family here are the schools that you want them to be? Is it safe? There are many questions to reflect upon when it comes to location. If this spot checks off a majority of the positives on your wants and needs list for a home, begin the buying process and determine your purchasing power with a lender. It is always better to invest in a home that belongs to you, especially if you love the area.
On the other hand, if you are in the area because of a job choice or another personal reason, but aren’t from there or aren’t sure you want to stay for the long-term, then renting may be a better option for you. Renting allows you to feel out the area and get to know it better before fully investing into a place that you will call home for a long time. Although renting feels as though we are giving away money to live in a home that doesn’t belong to us, it can be a better option for the short term if you don’t love the location but have to stay there for other reasons.
3. The future is in your hands
Planning for the future, especially when considering the purchase of a home, should start now. Knowing where you will be in the next 5 to 10 years is imperative to selecting a home that will fit your needs for the long term.
When writing out your wishlist for a home consider these questions:
- How many people will be living in my home? Now? In the future?
- Do I plan to grow my family?
- Do I have or want pets?
- Do I want my home to be the place for holiday gatherings?
- Do I want a home that is move-in ready?
- Where is my ideal neighborhood?
- How much can I afford to pay for a mortgage?
- Do I want to invest in a fixer upper?
- What is the difference between my rental payment amount and my future mortgage payment?
- What other expenses come with a home versus a rental?
Planning for the future will allow you the space and home to grow in as you and your family begins to grow. Don’t be so set on now that you lose sight of what the future may have in store for you. Plan wisely, even if that means another year of renting, so that you may score the home of your dreams and love your space for years to come.
When deciding whether renting or buying a home is the right option for you, there are many different factors to consider. Remember to focus on things like your financial buying power, your debt to income ratio and your savings amount. Be honest with yourself and choose an option that works best for your financial health. If you’re still unsure what the best option is for you, right here in the Valley, let’s chat. I would love to help walk you through the process to determine the best choice for you, and if that means purchasing a home, I’ve got you covered there too.