Making up your mind on whether to buy a house or rent it is not an easy decision to make.
Everybody’s situation is different and the choice should be made based on your lifestyle.
Not everyone is ready to buy a house and below are some of the signs that you should rent
instead.
1.
You might move in a couple of years When making a decision on whether to buy or
rent, the most important thing to consider is how long you think you’ll stay there.
For you to earn money from buying a house you’ll have to wait for about five years.
So if you think you’re going to move before this period, take a step back and consider
renting instead.
If you decide to sell the house you’ll have to think about a lot of things.
The 5% commission the realtor gets, the transfer and capital gains taxes, moving fees, and
the money you’ll have to chuck to make any necessary repairs or improvements so that
the house is in good condition to appeal to potential buyers.
The point is to stay in the house long enough for the equity you get from paying off the
mortgage to supersede these additional costs.
Take a good look at your life and think about whether being in the same place reflects where
you’d like to be in the next five years.
Remember that renting offers flexibility to move from place to place that buying a house
doesn’t.
2.
Buying means a longer commute The type of house you want to buy might be
in your price range, but far from where you work and if this is the case it may be wise
to rent.
People usually fail to put the cost of commuting into consideration before buying, but they
should.
Commuting has the possibility of adding an additional 10% to the price of a house in
terms of time and gas, especially in areas where having a car is a big part of people’s
life.
Aside from money, commuting also has an effect on your general well-being.
Studies indicate that these long commutes, even those as short as ten miles have a lot
of effect that are detrimental to your health.
It is a great source of stress to many and can even contribute to pain, obesity and even
troubled relationships.
But even with more research showing that long commutes and traffic jams are harmful to our
health, the amount of time and distance people commute continues to rise.
When you opt to driving when you live far from your home you have to factor in the extra
costs that come with the extra mileage.
Insurance has to go up, the costs of fuel and maintenance also goes up.
And due to the extra distance you’ll have to purchase a new car sooner than you had
intended.
With all this in mind do you think that living far away from the workplace is worth all the
extra hassle?
3.
You don’t have enough saved up for down payment
Before you start looking for a house to buy, you should have enough saved up as a well
as a cash reserve that can cover a down payment and any other expenses that may arise during
the process of purchasing the house.
It’s a good idea to save at least 20% down payment since it means you won’t have to
pay private mortgage insurance.
As you’re looking for a home also look for a qualified real estate agent or a lender
who can give you a good visual of how much you can afford and how much of a down payment
you’ll need.
4.
You have a lot of debt If you’re struggling with debt you might
want to steer clear of yet another one.
Someone who isn’t able to manage their debt isn’t ready to take on a substantial mortgage
debt.
Also, if all your bills take up half of your monthly earnings chances are you can’t afford
to add a mortgage payment and it’s advisable to get a handle on your other debts first
before thinking about buying a house.
There’s always something you need to look at too before you apply for a loan and this
is the debt ratio.
This is the percentage obtained when your monthly debt payments are divided by your
monthly gross income.
It’s important to note though that rules keep changing when it comes to debt ratios.
The figure tends to gravitate around 43% and if your other bills take up half of your gross
income, you probably can’t afford to add a mortgage payment on top of your debt.
It’s important to calculate your debt-to-income-ratio because the percentage is used by lenders
to determine whether you’ll be able to repay your loan and decide on your reliability as
a borrower.
If your ratio is currently above 43% consider paying off more debt before buying a home.
A high figure doesn’t look good to lenders and it’s likely that your finances can’t
handle the additional debts.
5.
Your credit score is low Credit scores is a very important factor that
lenders consider when you’re applying for a mortgage.
You need to have a credit score of not less than 620 in order to be qualified for a mortgage
backed by a private lender.
Your chances of securing lower interest rate increases if you have a higher credit score.
Conventional mortgage require a down payment of at least 5% of the price of purchase and
an extra private mortgage insurance if your down payment is below 20%.
Of course government agencies can be used to back home loans for those who have low
credit scores and less cash to put down, but at some trade-offs.
It’s much better to tackle credit issues early as ding so can help you raise your score
before you apply.
6.
The housing market is overpriced
Whenever real estate prices go up because of a strong economy, it means that if you
were to buy a house, you wouldn’t be buying at the top of the market.
But if the prices are at their lowest most likely due to inventory, then this could be
an indication that you’re buying at the top of the market.
Of course, the market cycle will change once again as it always does and more construction
will be underway, more properties put up for sale, resulting in an increase of inventories
and a deduction in prices.
If the house you’d like to purchase at a price that isn’t close to giving you back
the cash on cash return that you should be receiving at the top of the market, leave
it.
Don’t be fooled into buying a house that is overpriced thinking that it will be worth
more in the future than it is at the moment.
If you’re in such a position, then just rent instead.
Always keep in mind that buying at the top of the market is profitable to those who are
selling and creates losses for buyers.
So always be sure which side of the fence you want to be on.
When the available houses seem to be on the low, don’t panic and settle for whichever
house seems to be okay compared to the rest.
Take a step back and be patient.
Take the time to find a house that will tick all the right boxes for what you’re looking
for in a home.
When there’s a great demand for property, the market becomes hot.
Everyone wants to buy a house and you’re under pressure to make up your mind.
In some instances open houses are packed and some buyers even arrive with home inspectors
and make an offer right there and then.
But if you make a rash decision and fail to thoroughly check the place out, you will most
likely end up paying for more repairs than you had anticipated initially.
What’s the rush?
Take your time to find a good house while you rent in the meantime.
7.
You aren’t ready to mow the lawn Owning your own house has its perks.
You get to decorate and renovate it however you want and you don’t have to live in a
tense state because the landlord can increase the rent at any moment.
But there’s a side of owning a home that isn’t as pleasant.
You have to mow the lawn, clean the gutters, and trim the hedges and so on.
But if you’re a tenant all you have to do is ring the landlord whenever you’re sink
needs to be repaired or the lights are acting funny.
Being a property owner comes with a lot of responsibilities and requirements and you
have to be ready to do all of them before you purchase the house.
So if you’re not up to it, rent instead.
The cost of maintaining a home can be quite high.
It can cost between five and ten percent of the price of your house each year depending
on how old the house is and the condition it’s in.
On top of that if the house you’re buying has a Home Owner’s Association, HOA, mostly
present within condos, gated communities and apartment residences, get used to the monthly
fees that you’ll be expected to pay.
In some markets, it isn’t unheard of to have to pay $300 to $400 every month.
Yikes!
8.
You might relocate for work in future If you’re not planning on staying at your
current job, or the kind of work you do is one that is temporary, putting your money
in real estate probably isn’t a good idea.
It’s been said that at certain times in life it’s much more appealing to rent.
Rent is not necessarily blowing money away as most people believe.
Renting offers you opportunity.
It offers you flexibility.
When you rent a home, you can apply for a lease for a year or even half a year if you
want.
And if you need to move away for work, it’s much easier to move out.
But buying a home is a much longer term commitment.
And relocating could be really difficult.
When you move to a new city and are settling into your new job, try and gauge whether you
like what you’re doing or whether you’re in a stable position before buying property.
You might think about applying for a new job elsewhere but your options become limited
when you’re tied down to a home.
Don’t forget that when you buy a new home there are closing costs you have to pay off
and you need to stay for a few years in it before you recover them.
If you buy a new house though and you need to sell it after only a year you could easily
lose the money.
Never be in a hurry to buy.
Give yourself time to adjust to your new situation and hold off any home purchases until you’re
sure you like where you live and you have a stable position at your place of work.
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With that said, have a great day and I’ll see you all in the next one.