Should you rent or buy a home? Many people arrive at this question eventually at some point in their lives. When weighing major life decisions such as this, everyone seems to have an answer. That doesn’t instantly make it the best choice for you though. While homeownership makes sense for some people, it may not for others. The same thing can be said about renting. To arrive at the best answer for your particular situation, here are the factors you need to consider from Gloucester, MA real estate pros..
Do you have money for a down payment?
Generally speaking, you need to make a down payment that’s at least 20 percent of a home’s total cost. This has practically become the rule of thumb, because it significantly reduces your financial risk for the future. A mortgage that requires no down payment is often too good to be true, and you shouldn’t be quick to jump at such an offer. If you can’t or aren’t able to save for a down payment, then that may tell you that you are not ready for homeownership just yet.
Does your income allow you to afford the monthly mortgage payments?
Though it can be difficult to save up for a down payment, it can even be more challenging to meet monthly bills. Ideally, your mortgage payments shouldn’t exceed 30 percent of your gross monthly income. If you enter into an agreement that’s more than that, you may find yourself struggling financially. Remember, you have to make payments without fail if you want to keep your house.
Just because you can afford rent doesn’t mean you can afford a mortgage
Mortgage says, you only have to pay $1,000 a month. Since you’re already paying the same amount on rent, then you can afford homeownership, right? Unfortunately, this is the wrong assumption for you to take. When you buy a home, your monthly payments come with additional fees including property taxes, insurance and utilities, not to mention the maintenance, repairs, and other upkeep needs. When you factor in these additional costs, you’re looking at monthly expenses that could be as much as 40 percent higher than what you expect.
Get ready to scale back your expectations
Some people, even after realizing they can’t afford the true cost of ownership of their dream Gloucester, MA real estate property, will still move forward with the purchase. Before you buy more house than you can afford, try this experiment: set aside 40 percent of your rent for six months to one year. At the end of your trial period, ask yourself: did you still have enough to live a comfortable lifestyle, or did you struggle to make it work? Were you able to make prompt deposits, or were you late at certain points?
If you managed to meet your payments without a fuss, then you’re probably ready for homeownership. Otherwise, you may have to choose a cheaper home, or rent for the time being.
Renting isn’t necessarily cheaper than homeownership
Renting doesn’t involve all these additional costs, so it’s cheaper, right? Though it’s true for the short term, the long-term frames a different picture. For one thing, you don’t have to worry about your rent increasing each year due to inflation. For another, your home’s value goes up while your mortgage principal goes down, putting more money in your pocket as you move closer to completing your payments.
Deciding whether to rent or buy a home isn’t an easy choice. Granted, home buying comes with a lot of unbeatable advantages, especially if you plan to stay in your new home for the long term. Consult the Gloucester, MA real estate pros at Buyers Choice Realty to show you a buy vs. rent analysis that accounts for your specific life situations and financial condition. Our office number is 978-468-2138.