Are You Ready To Buy Or To Rent A Home Instead?
We all grew with our parents wanting the best for us – getting a job, marrying and settling down, and eventually be able to by a home for our family. Homeownership is something almost everyone would agree that we must dream and work for. There are several benefits to owning your own home – not having to pay monthly rent, a real estate property to leave the family, and possessing a tangible financial asset to which its value increases over time. However, buying a home is a big financial decision and it also has its fair share of drawbacks that leaves you asking yourself on how will you know if you are ready to buy or to rent a home instead?
Ignoring the warning signs can lead to a mistake in the decision or buying process, which at best could lead to time wasted and a purchase that does not push through. At worse, it may result in the ownership of a property that is overly expensive and less than beneficial.
Here is a helpful guide on whether you are ready to buy or to rent a home instead:
Too Much Other Debt
Buying a home is committing to paying a monthly mortgage. If you are already committed to paying car loans, credit card debt, or even medical bills, adding a monthly mortgage can add stress to your finances. Going beyond the recommended debt-to-income ratio might lead you to very little financial flexibility and not many remaining funds for saving, investing, or other unexpected expenses.
Tip: Go over your debt, and the total number of years you still need to pay off your existing loans. If you can pay your existing loans as early as you can, do so. Your debt should not be more than one-third of your total gross income for balanced financial flexibility. Reconsider buying a home only after your debt is manageable for you. Calculate all your potential debt to know to decide whether you are ready to buy or rent a home instead.
Cannot Maintain an Emergency Fund
Home ownership is one of the biggest financial responsibility ones will ever handle. It is recommended that not only do you have sufficient funds to not only cover your monthly mortgage but to cover emergency expenses as well. An emergency fund is a saving fund for unexpected expenses like emergency repairs on your home, to sudden unemployment, and or illness.
Tip: Build your Emergency Fund before considering buying a home. Your emergency fund should be 6-8 months worth of living expenses including food consumption, covering utility bills, and loans, and etc. It will be your safety net in case of job loss and the likelihood of missing home loan payments
Not Enough Funds
Most homes are bought with the help of home loans. However, not all expenses are covered by home loans and the homeowner will have to shed some funds to cover with the required and miscellaneous expenses. These expenses include 10-20% of the property’s purchase price as down payment, moving costs, and other moving in expenses that you might have overlooked. Allocation of funds should not only be center on the total sale price of the property but to make sure that you will have more than enough to cover the additional costs.
Tip: Before buying a property, make sure that you have enough funds to cover the equity and some more extra.
Irregular Job
Most home loans require the borrowers to have a steady job and income which is a good sign of financial security. Constantly changing your jobs or in a commission-based occupation may be difficult due to fluctuating of income. Before buying a property make sure that you have a steady job, and income to cover your future monthly mortgage.
Tip: Prior to buying a property, make sure that you have a good standing in the job you are in and have a steady stream of income that covers your mortgage.
While buying a home for yourself is a goal that everyone would want to achieve early on in our lives, it is not something that one should jump without proper financial check. Buying a property is a long term commitment to the responsibility of paying off the home loan. It is also a forward-thinking move having to constantly be aware that any missed mortgage payments might cause you to lose your home, or have it foreclosed. If buying a home is not an option for you this time, renting one is a financially sound and smart move. You can choose to rent a home that is well within your budget range, and still have enough to raise the funds or savings to eventually buy your dream home. At the end of the day, only you can decide whether you are ready to buy or rent a home instead.
