Before you decide to buy a house, answer these questions:
Are you comfortable with what you can afford?
If you can’t afford to buy in the neighborhood where you want to live, or if you’ll face a much longer commute from the places you can afford to buy, it may make more sense to continue renting. Find out what you can afford.
Have you saved enough cash?
You’ll need money for your down payment—typically 10% to 20% of the purchase price depending on loan type, and you may be responsible for closing costs on the loan. You’ll also face new costs in addition to your mortgage payment. If you have limited savings, it may make sense to continue a lower-cost living arrangement until you can save more.
How financially stable are you?
Make sure your income is steady and reliable. If there’s a chance you could be laid off soon, or if you’re not 100% confident you’ll be able to pay your mortgage every month, renting is probably your best option until things stabilize.
Do you have good credit?
If you have recently missed payments or maxed out your credit cards, you may consider waiting to purchase a home until your credit improves so you can qualify for a lower interest rate. Find out more about credit scores and how you can improve yours.
Do you plan on moving anytime soon?
If you only plan on being in your home for a few years, renting may be the better option. The general rule of thumb is that you should only buy if you plan to stay in your home for at least five years.
Buying a Home Versus Renting: Real Life Examples
Meet Mr. & Mrs. Ready-to-Buy
Larry and Jill have been planning to buy a home for a long time. They’ve been looking at neighborhoods and cutting back on vacations, restaurants, and other extras. They have enough money for a down payment, plus, they know that Larry’s dad is willing to give them $10,000 when the time is right. Jill has just finished paying off her student loans. Larry recently got a promotion at work. They like homes in several neighborhoods with good schools for their kids. They’re ready to get serious about shopping for a home.
Meet Mr. & Mrs. Keep Renting
Adam and Jodi also want to buy, but they don’t want to leave the bistros and coffeehouses in the trendy neighborhood where they live. While they know that Jodi’s father will help them with a down payment, there are simply no houses in their neighborhood that they can afford. Because they’re both freelancers, their annual income varies quite a bit each year. And, their central location helps them get to any part of town easily. The neighborhoods they can afford are further away and would require a longer commute to work. Plus, they have a rent-controlled apartment that’s big enough to start a family. For Adam and Jodi, it makes sense to keep renting and saving.