You’re considering your next move, whether for personal, family or career reasons. You’re not sure if it’s smarter to rent or buy a home, but you know it’s smart to sort through the pros and cons of each option. It also requires being honest with yourself about future plans, your financial health and comfort zones. Here are five questions to ask about renting versus buying a new home.
Can You Qualify For a Mortgage?
Let’s assume you’ll need a mortgage to buy a home (that’s most of us). Qualifying for a mortgage means filling out loan application forms and providing proof of your financial situation. Do this first. The majority of us can’t proceed with our buying-versus-renting decision until we know whether we can be approved for a mortgage.
Can You Put Up a Down Payment?
Let’s assume you’re pre-approved for a mortgage. Your next hurdle is the ability to pay a down payment — a percentage of your home’s total price — when you go through the closing process of formally signing all mortgage documentation. What remains of the total home price, after the down payment, is financed via your mortgage. The current industry-standard down payment is 20 percent of the cost of your home.
What’s Your Income to Debt Ratio?
Mortgage lenders usually take a cautious view of prospective home buyers with lots of debt. Significant credit-card balances and inconsistent income sources are only two risky factors that can tank a home buyer’s hope of qualifying for a mortgage. If your finances need cleaning up or stabilizing, tend to those tasks first, to better position yourself for future mortgage pre-approval.
How Transient Are You?
The answer to this question is as individual as you are. If you’re a career person likely to be transferred — and frequently — buying a home may not be the best answer. If you’re settling in your new Florida town for a long period of time, buying a home may be the best answer. Bottom line: if you buy a home, you need to own it for a while in order to establish valuable equity.
How Old (or Young) Are You?
Many younger prospective home buyers prefer mobility in terms of where they live. If you’re not ready to establish a home base, buying one might not be the best “move,” temporarily. If you’ve been there and done that several times, in locales all over North America and the world, then you’re likely over the frequent-relocating part of your life. Congratulations! You’re a prime candidate to apply for a mortgage!
