With mortgage rates on the rise, you may be wondering whether it makes more sense to rent or buy. However, the truth is that this decision is a personal one. It’s not as simple as looking at current home or interest rates. To decide whether to rent vs. buy, you need to ask yourself a few tough questions and be honest about the answers. To that end, here are four questions to help guide your decision-making process.
Are you financially fit?
Buying a home is a huge financial undertaking. With that said, it’s a good idea to be fairly financially stable before applying for a home loan. Generally, lenders look at the following criteria when they evaluate your application.
- Work history: A lender will want to see two years of W-2s (or tax returns, if you’re self-employed.)
- Credit history: Lenders like seeing high credit scores. Although there are a few loan programs that accept scores as low as 500, provided you meet their other eligibility criteria.
- Debt-to-income ratio (DTI): This ratio tells the lender how well you’ll be able to take on more debt in the form of a new housing payment. Lenders generally look for a ratio of 43% or less.
- Cash reserves: Lender typically want to make sure that you have enough money in the bank to cover your mortgage payment even if you lose your income. They typically want you to have 3-6 months’ worth of mortgage payments in savings.
If you have a stable income, a decent credit score, and some savings in the bank, there’s a good chance that you might be ready to buy, If one or more of these areas need work, think about taking some time to sort them out before you apply for a loan.
Are you ready to put down roots?
Buying a home is a long-term investment. Conventional wisdom states that it takes around four years to recoup the upfront investment of buying a home. With that in mind, buying really only makes sense if you’re planning on staying in one place for at least that length of time.
If your job is solid, you like where you are, and you intend to stay put for the time being, that’s a good sign you’re ready to buy. On the other hand, if you’d rather stay open to new opportunities, or your living situation might change drastically over the next few years, renting may make more sense for the immediate future.
Can you handle the responsibilities of being a homeowner?
Next, think about whether you’re prepared to handle the maintenance and upkeep that comes along with being a homeowner. When you’re a renter and there’s a problem with your home, you simply call your landlord and wait for them to fix the issue. When you’re a homeowner, it’s on you to do the work or hire someone who can.
If the idea of spending your time off doing work around the house doesn’t appeal to you, you may be better off renting for the time being. However, if you’re willing to invest time, energy, and money into an asset, then you may be ready to buy.
Can you afford what you want?
The last thing to consider is whether or not you can afford what you want in the current market. While you’ll always need to make some compromises when you buy a home, you ultimately need to be happy with your purchase. If you’re not pleased with the homes in your price range, it may make more sense to rent until the market changes or you’re in a position where you can afford more.
The best way to figure out how much you can afford is to talk to a lender. They can help you get pre-approved for a loan, which will help you zero in on what your price range will be. Then, connect with a real estate agent who can start showing you available homes that fit your budget.
Decided that you’re ready to buy?
Give Premiere Nationwide Lending a call today to talk to one of our lenders. They can help you get pre-approved for a loan and get started on your homebuying journey.
Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 6201 West Plano Parkway, Suite 100, Plano, TX 75093 | NTFN NMLS 75333.