There is no denying the flexibility that renting offers- you can move relatively easily and you do not have to carry a mortgage for decades to have a place to live. However, if you are like many renters, you are probably at least considering the idea of owning a home.
But how do you know if you are ready for homeownership? Here are some reasons why you might be prepared to become a homeowner. If some or all of these resonate with you, it's probably time to talk to a real estate agent you trust to start looking for a place you can be happy owning and living in.
The opportunity to become a homeowner can be both emotionally and financially rewarding when you have a long term horizon. By following some sound first-time-homeowner tips, you'll ensure that your journey from renting to owner goes smoothly.
The following are some of the most common reasons why renters decide now is the time to own a home.
In most areas of the country, rents are rising and rising. The increase in rental prices can be frustarting for numerous reasons. You cannot anticipate what your housing costs will be over the long-term, which makes it hard to plan your finances.
You also probably feel some frustration with landlords- after all, who likes being told that they need to fork over more rent money in the coming year? There is also the uncertanity of the whole situation that can get to you. Your income is probably not shooting up and up each year, so why should you be expected to pay more and more rent?
Whe n rent is going up, and mortgage rates are low, it can be a good sign that you should start shopping for a home. If you think about it- when you are renting you're most likely helping someone else pay their mortgage. Unfortunately, that person is not you!
Sime folks aren't quite ready to go right from renting to becoming a homeowner. Often the reasons are financial ones. It could be not enough of a down payment or high amounts of debt (student loans, medical etc..). At times, if you can find the opportunity, renting to own a home might make sense. Be careful and do your research, these deals can often come with hidden fees so make ssure you fully understand what you're signing up for.
One of the better reasons to go from renting to owning a home is when money is unbeliebably cheap. When interest rates on mortgages are desirable, it'l like a flashing sign that says "buy, buy,buy" Interest rates won't stay at record lows forever. History shows us that they can turn rather quickly.
When they do, it will be a lost opportunity if you were in a position to buy.
Lenders look closely at the amount of debt you have and how you have managed that debt. Ideally, a lender wants you to have 43% or less debt-to-income ratio, although some convential loans will allow you to have a 50% DTI.
You can calculate your debt to income easily by adding up all of your monthly debt payments. Once you know what all your monthly debts cost, then you can divide that number by your gross monthly income.
If you have high balances on you credit cars, you can pay them down in order to look more appealing to lenders. You do not have to pay them off completely, instead pay them down enough to hit the right debt-to-income ratio. Then you can put that extra money into building an emergency fund for your home.
Purchasing a home requires paying a lot of costs at the beginning that cannot really be recouped in the first few years of ownership. In other words, for a home purchase to make financial sense, you need to be ready to sick around for a while. Over time , the investment can prove quite positive, but it does take time.
Real estate has been shown over and over again to b ean excellent long term investment. Like other investments, it is not for someone who might need to move quickly because of a job relocation.
Lenders prefer you to have had the same job for a while as well, a job you are probably going to stay at for years after you purchase the home. They prefer you to have a steady, stable income so that you are less of a risk. Your regular income ensures you won't miss mortgage payments.
The desire to live in a particular property or neighborhood can be powerful. Maybe your parents are getting ready to downsize, and you have always thought that owning their place would be a great idea? There may have been a house in the town you’ve always wanted to own if it became available?
Some buyers have always pictured themselves living in a desirable neighborhood in town that has all of the amenities close by that you love. There are different strokes for different folks, and emotional attachment can be highly influential in that thinking.
As a renter, your rent payments are paying the mortgage of the landlord or property owner. If you are ready to put all that money towards your future, buying a home makes sense. Each mortgage payment you make will increase the equity in your home, which is an investment for you.
A home purchase is not always a guaranteed home run—all investments carry risks. But, generally, you can expect that over the life of your mortgage, you will gain a lot of financial benefits out of putting money into property.
There are also tax advantages of owning a home as well.
One standard piece of advice for every potential homeowner is to have an emergency fund in place for the unexpected. As a renter, your landlord pays for emergencies.
If a pipe bursts, a refrigerator breaks, or an air conditioner stops working, the landlord has to come in and fix it—and pay for those repairs. But as a homeowner, you are the one responsible for those expenses. You want to be confident you have enough money set aside to weather such emergencies.
I have written about things you need to do before buying a home, and that includes having a down payment and money set aside for emergencies.
If you are seriously considering buying a home, you definitely need to start saving to create an emergency fund. That way, when something goes wrong—which is going to happen eventually—you can handle it without breaking a sweat. Vanguard has an excellent resource that discusses some of the problems that can rear their ugly head you need to be prepared for.
One of the most common reasons from going from renter to homeowner is a significant life event such as getting married. It is not unconventional thinking at all for two people to decide to find a home that blends common goals.
Having an apartment usually does not satisfy the needs of blending two families,’s especially if there are kids involved.
One of the most significant signs you are ready to move from renting to owning a home is having a down payment. Financial stability is a significant indicator that you are prepared to buy a home—particularly when it comes to down payments and closing costs.
You want to be able to pay the down payment so you can get a mortgage, and you want to be able to pay the closing costs so you can finalize your purchase. And don’t worry if you don’t have 20% down—many loans do not require so much for a down payment.
There are numerous loan programs available for first-time buyers. It can be very confusing to a first-timer because of how many mortgage choices are out there. An experienced mortgage broker can come in handy to answer all of the questions you should be asking a lender. Remember, you should be interviewing them as much as they are interviewing you.
For first-time homebuyers, FHA mortgages have become really popular. Some FHA loans only require 3.5% down, while loans backed by Fannie Mae and Freddie Mac only need 3% down. If you can come up with 3% down and qualify for the right loan—and have your closing costs in order—you can likely become a homeowner.
The credit score you bring to lenders is going to play a significant role in the type of financing you can get. The worse your credit score, the fewer options you have available when buying a home. That is why it is essential to do what you can to improve your credit score before you go to try and buy a home. The better your credit score, the more options you will have, and the more money you can save on your mortgage.
If you have improved your credit score, it may be time to talk to a lender about what you can do to get a mortgage. You can sometimes qualify for a mortgage with a credit score of 500—but that does not mean it will be a mortgage that you want.
The mortgage will have an undesirable rate and will require a higher down payment. But, if you have a higher credit score, the loan will have a better rate and require a lower down payment.