Renting and buying a home has its pros and cons. The right option for you will depend on your financial circumstances and goals.
Buying a home — like any real estate purchase — can be a great investment. But is it a good investment for you? That depends on a number of factors. First, ask yourself, does it make sense to purchase a home if you are already in a reasonable rental?
Can I afford a mortgage?
The fact is, if you are renting a home it’s likely you are already paying a mortgage — your landlord’s. You are also paying the landlord’s taxes and insurance, not to mention the profit the landlord draws from the rental. When you move out of that rental, you will have nothing to show for the money you’ve spent for the use of your landlord’s property. If the home goes up in value, you will receive no financial benefit.
Another thing: Renters are at the mercy of a landlord. If the landlord chooses to raise the rent at the renewal of your lease, you could face an increase that you’ll be unable to pay, even if the property you rent is subject to rent control or stabilization regulations. You could be forced to pack up your life and move.
Landlords also set the rules. You may not be able to have a pet, make structural changes, update appliances or even change paint color. Rules vary, but one thing is always true: you’re never free to do whatever you might want to do in your home.
But can you actually afford to buy, rather than rent?
You probably can. The truth is that, once you’ve saved up for a down payment and purchased your own home, your monthly costs might actually be lower than your rent. Remember, your landlord was likely charging you more than the actual cost of ownership. A good Advisor can help you devise a plan to start saving for a down payment. They can even help you find 0% down financing if you qualify.
Once you are the homeowner, you will still be paying the mortgage, taxes, insurance and upkeep, but the money you put into the home goes toward equity in ownership. And you’ll be the one to benefit if and when the property rises in value.
How much could I save?
A good Mortgage Advisor can help you determine how much you may be able to save if you become a homeowner instead of a renter. He or she will show you how the money you spend on home improvements may boost its value. Depending on how long you hold onto your home and which way the market goes, you could realize a healthy profit when and if you decide to sell.
If you expect to move frequently – maybe your job transfers you often, or you’re in the military – don’t necessarily rule out the idea of purchasing a home. While the costs of moving and financing may offset any profit you might realize from a quick resale, you might choose to rent out the property. Then you’ll become the landlord and profit from the rent and from an increase in property’s value when you ultimately sell. Then again, with the recent hot market, it doesn’t take long to see a profit from an investment in residential real estate.
Where should I buy?
If you are buying your own home, then your choice of location is determined by job, family and lifestyle choices. If New York is the place you need to be, then so be it. Hey, if you can make it there, you’ll make it anywhere. The fact that New York real estate can be more expensive than many other locations may factor into your decision to buy, but it certainly is only part of the decision.
If you are buying as an investment, you will need to do a careful analysis of market trends, potential return from rental income, cost of living, utilities, and much more. Most urban center prices are sky high, for example, but so are the rents. Again, a good Mortgage Advisor can help you determine what level of investment would be a smart move for your financial situation.
Once you’ve decided where you want to buy, make sure you work with your Mortgage Advisor to determine how much you can spend — before you go house hunting. It makes little sense to shop for a million-dollar penthouse if your budget is $400K. Your Advisor will be able to tell you what your “buying power” is, and will be able to get you pre-approved so that when you make an offer on a home, you’ll be taken seriously.
So, yes, by all means, buying a house is a great idea – as long as you are investing wisely. Just make sure you get the right advice from people who do it all day long.