In today’s market, it is a justified question to ask if you should rent or buy your next property. At some point, every person who rents property has gotten frustrated and asked if their lives would be better by switching to purchasing their own real estate. Making this decision is a complicated one, and requires a heavy amount of consideration regarding this long term investment. At a first glance of the market, buying a home is an attractive concept that saves you money in the long run and gives you freedom to change your place how you like. However, there are several things you need to ask yourself if buying is the right choice for you or your family.
The first question to consider is that does make financial sense to stop renting and purchase a home? One popular real estate concept is the Rule of 15, which states that it makes sense to buy if the home in your area is worth less than 15 times what your annual rent. To clarify with an example, let’s say you have a monthly rent of $2,000 which equates to an annual total of $24,000. Multiplying that annual number by 15 gets you to $360,000 which is the maximum you should be willing to spend on purchasing. If you cannot find a home you are happy with in the area you want under that number then it makes sense to wait or change your search strategy. The New York Times has a great visual graph on their site that further explains this and can help in your decision process.
The next point you should ask is if you are in enough of a financially stable and comfortable position to afford this move? Affordability is a large factor, and houses come with many costs other than just your mortgage such as closing costs, HOA/Condo fees, taxes and homeowners insurance. Determining what housing you can afford can be difficult, but it is suggested that you do not exceed spending more than 3 times your annual income on any property. Credit score is as well a large factor in your decision, as a low score will relate to much higher interest rates. Mortgage companies look at these factors including credit score, employment and your debt to credit ratio in setting what your mortgage limit is.
The last question to research is if the market is at the right point/time for you to purchase a property? Currently we are seeing a very strong market where there are more purchasers than sellers. Inventory on current listings is down 25% from this time last year, which is driving prices on those properties up. On a given property, this could lead to multiple offers and quick closings on listings which are why it is important to do your research before and speak to a mortgage lending services professional. Integrity Financial loan specialists can help you determine what loan options you qualify for and help you through your buying process. Give us a call today at 1-877-760-9854 to find out more information.