For many people, buying a home is the biggest financial commitment they’ll ever make in their lifetime, so it makes sense to carefully consider some of the pros and cons of each choice. To help, we’ll share:
• Pros and cons of renting vs buying a home
• A quiz to help you make your decision
• Tips to help you to determine if you’re ready to buy a home
Related: Mortgage calculator
Rent or buy a home: Pros and cons
Advantages of renting include (but are not limited to):
• Your landlord is typically responsible for repairs and maintenance, so your money can go elsewhere.
• Your landlord may also pay some of your monthly utilities, and you aren’t responsible for paying things like property taxes.
• When your lease is up (often a six-month or annual commitment), you can renegotiate or simply move somewhere else. You have flexibility.
• You don’t need to make a big investment (such as the down payment and closing costs associated with home buying) when you move into the next place you rent.
Disadvantages of renting include (but are not limited to):
• Your landlord may put restrictions on you that you don’t necessarily like, perhaps refusing to allow pets or to permit remodeling.
• The rent you pay each month doesn’t give you any equity/ownership in a property. It just goes to the owner, unless you set up a lease with an option to buy agreement.
• You can still feel stuck in a house during the lease period.
• If the owner decides to sell their home, you may need to quickly and unexpectedly move depending on the type of lease or where you occupy.
Advantages of buying include (but are not limited to):
• As you make mortgage payments — depending upon market conditions — you could be gaining equity in your home.
• You have far fewer restrictions around things like remodeling, pet ownership and so forth.
• You have more stability. You can stay as long as you’d like (barring any unusual circumstances such as eminent domain), with no worries about an owner selling the property while you’re living there.
• Sometimes, your mortgage payment can be cheaper than what you’d pay in rent.
Disadvantages of buying include (but are not limited to):
• You typically need to make a down payment, and pay closing costs and so forth to get the home. It’s an investment.
• You’re generally responsible for all repairs, maintenance and utilities, plus homeowners insurance, property taxes and other special assessments such as HOA dues.
• If you decide to move, until your departing home is sold, you’re still responsible for its mortgage payments along with the housing expenses attached to the new place you’ll live.
Renting or buying quiz
This quiz may also help you in your quest to decide between these two choices.
Are you really ready to buy?
The answer may already be clear to you. If not, SoFi has created a post to help you to decide if you’re ready for the responsibilities of homeownership, offering tips on how to prepare yourself if you’ve decided to buy.
Before you begin the home buying process, it might make sense to:
• Do your research to ensure that you’re buying for the right reasons and are ready for a long-term commitment. If you’ve saved enough money for a down payment, that’s a good sign.
• Consider if your line of work allows for job continuity with steady ongoing income. Have you had this type of income for the past two years or more?
• Although it is ideal to keep as much money as possible available when purchasing a home, if your current debt-to-income ratio appears too high for the loan program you would like to apply for, you may need to consider paying down some debt. Generally, in order to calculate your DTI ratio, divide your monthly ongoing debt payments (do not include things like utilities) by your monthly gross (pre-tax) income.
• Save money for a down payment, closing costs and other fees, plus some funds for moving expenses and any remodeling/repairing you might need to do.
• Check your credit scores and work on improving them, if necessary.
• Do a gut check to see if you’re really ready to be your own landlord, meaning being responsible for your own home maintenance, inside and out.
Even if you decide you’re not quite ready, that’s good info to keep in the back of your mind for when you are ready. You could also consider a rent to own home if you are almost ready to take the plunge.
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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