Are you Ready for the Commitment?
First, ask yourself if you’re ready for the commitment of buying a home. Homeowners have a lot more responsibilities than renters. Ask yourself if you’re ready to:
When will my home investment become worth it?
It’s a lot harder to move when you own a home versus renting. As renters, you could move yearly if you wanted. Homeowners tend to stick around for at least a couple of years.
Have you Evaluated your Financial Situation?
When you buy a house, you take on a major financial responsibility. You not only pay the principal and interest on the mortgage, but you also pay the real estate taxes and homeowner’s insurance and you’re responsible for all maintenance and repairs.
Ideally, you’ll have money saved for a down payment (more on this below), money put aside for emergencies (3 – 6 months of mortgage payments is ideal), and minimal debt.
Also, consider your employment/income situation. Do you expect things to stay the same or get better in the coming years or will things change for the worse? For example, will you go from two incomes to one because you want to start a family? Will you go back to college?
Buying vs Renting – What’s Better?
There isn’t a one-size-fits-all answer to this question, it depends on your situation. First, ask yourself do you have:
Do you have a Down Payment?
The final question to ask yourself is about the down payment. You’ll need money to put down or at least to cover the closing costs, depending on the loan you get.
At a minimum, you’ll need 3% down if you have great credit and qualify for conventional financing. If you have mediocre credit, you may need 3.5% down and to use FHA financing. No matter the minimum down payment requirement, though, the more money you put down, the better rate and terms you’ll get, plus you’ll have instant home equity.
Prepare to Buy a Home
Buying a home isn’t a decision to take lightly. Take stock of your financial situation, know how much money you can put down plus have on hand for closing costs or financial emergencies. Think about your future plans and determine if committing to a home that you ‘should’ live in for at least five years makes sense right now.