Deciding whether to rent or buy a home is never easy, so it’s certainly understandable if you’re reluctant to make a purchase. Yet the prospect of renting and not enjoying any sort of return on your investment may also make you feel unsettled.
To help work through the decision-making process, ask yourself the following 5 questions before beginning your search.
1. How much are you willing to spend?
When considering the costs of home ownership versus renting, you can’t simply compare a mortgage payment to a monthly lease rate. Owning a home usually means coming up with a down payment and forking over property taxes, mortgage insurance, homeowners insurance, and home maintenance and repairs.
Be sure you factor these costs into your calculations before making your final decision.
2. Do you understand the responsibilities of home ownership?
If you’re a renter and need to break your lease, you may incur a fine. But, in general, you’d be able to walk away relatively pain-free. If, however, you pay down a mortgage for 5 years and then, say lose your job, you could (if worse comes to worst) lose your entire investment through foreclosure.
Owning a house also means assuming more responsibility for its upkeep. You won’t be able to call a landlord or building manager if something goes wrong. And you’ll need to complete any repairs yourself or pay out of pocket for a professional.
Landscaping and lawn maintenance will also be your responsibility, along with all monthly utility bills — costs that are often included in a rental agreement.
3. Are multiple relocations in your professional future?
If your career requires you to move frequently, renting might be a better option. Selling a home is not an easy process — it takes time and costs money, including commissions, taxes, and other closing expenses. A rental, on the other hand, can have more flexibility depending on your lease agreement.
4. What’s your credit score?
When you apply for a home mortgage, one of the major contributing factors to your interest rate is your credit score. If yours is on the low end of the spectrum, plan on paying more in interest. Spread out over 30 years, this can add up. If you have less than excellent credit, you may want to opt for a rental until you can build up your score.
5. Do you mind dealing with a landlord?
When you own a home, you can upgrade however you please — you can paint the walls, redo the flooring, and basically change anything you want. That’s rarely the case when renting.
Landlords generally have certain restrictions in place limiting the changes you can make to the property, as well as other rules concerning pets, loud music, and even outdoor grilling (if you’re lucky enough to have a yard or balcony space).
A few other tips
Homeownership can be a satisfying milestone, but it’s not something to be entered into lightly. If you decide to purchase a home, be sure to do your research before choosing a real estate agent and mortgage company. Reach out to your friends and family for referrals and follow up by asking for sales statistics and references from previous customers.
And of course, once you find that dream home, make sure it’s protected with the right homeowners insurance policy. Get a quote from Esurance today.