For many of us, becoming a homeowner is a lifelong dream. The primary reason recent home buyers say they purchased a house is because they wanted a place to call their own, according to the National Association of Realtors’ 2016 Profile of Homebuyers and Sellers.
Practically speaking, buying a house could save you money over the long run: Purchasing a home is 37.7 percent cheaper than renting on a national basis, according to a recent Trulia study. Of course, in individual markets that can vary a lot, and let’s face it: buying a home is a huge commitment. So before you take the plunge, it’s important to make sure you’re ready. To decide if it’s better to rent or buy, you’ll need to ask yourself a few questions first.
While buying a house has its advantages, you don’t want to underestimate the duties of becoming a homeowner.
CAN I AFFORD TO PURCHASE A HOME?
This is the most important determination. Start by taking a close look at your income, cash savings and investments to get an idea of what you have. You can use Realtor.com’s home affordability calculator to get a rough idea of your buying power based on your income, monthly debts and how much you have saved for a down payment.
Once you get an idea of how much home you can afford, you’ll want to meet with a mortgage lender — which could be a bank, credit union or mortgage broker — to explore your financing options. If you can, get a mortgage pre-approval — a written commitment from a lender to provide you with financing up to a certain amount.
Remember that the recommended down payment is 20 percent of a home’s purchase price, and you’ll also have to factor for closing costs and other fees. If you put down less than that, you’ll have to pay private mortgage insurance, which will add to your mortgage payment. If you can’t afford to put down 20 percent on the home you’ve been eyeing, you may be able to put down less by getting a loan through the Federal Housing Administration or Department of Veterans Affairs. Or you may qualify for one of more than 2,200 down-payment assistance programs offered nationwide, which provide homebuyers with low-interest loans, grants and tax credits. (Use this map by HSH.com, a mortgage information resource, to see what programs are in your state.)
But generally, shoot for a 20 percent down payment so you don’t take on more debt than you can handle.
HOW LONG DO I PLAN TO OWN THE HOUSE?
Typically, renting is cheaper in the short term. That’s because when you rent, you don’t have to pay for things like closing costs, property taxes, insurance and homeowner fees. On the flip side, when you buy, you’re building equity as the amount you owe on your mortgage goes down and hopefully the value of your home increases. So over time, the value of that equity could be worth more than the extra cost of buying over renting.
The general rule is that it usually makes sense to buy if you plan to stay in the home for at least five to seven years. You can use a rent vs. buy calculator like Zillow’s or Trulia’s to get a rough idea of how many years it would take for you to break even.
AM I READY FOR THE RESPONSIBILITY OF HOMEOWNERSHIP?
While buying a house has its advantages, you don’t want to underestimate the duties of becoming a homeowner. When you purchase a home, you become responsible for maintaining the property. (Translation: You’ll no longer have a landlord you can call to take care of repairs.) Consequently, buying a home can be a big undertaking. Your nights and weekends may disappear under household tasks like cleaning the gutters, caulking windows and doors, and trimming hedges. Also, depending on the age and condition of the home, you might encounter issues with appliances, plumbing or roofing — which can be costly to fix.