Most people still believe in the “American Dream” of homeownership, but the decision to rent or buy is not as simple as a preference for one living arrangement or another. The Census Bureau reports that about 64% of Americans own their homes. While the other approximately one-third of households rent their homes, many of those renters aspire to become homeowners.
It’s no wonder so many people want to buy a home. According to the 2018 Federal Reserve Survey of Consumer Finances, the median net worth of homeowners was $231,400, which is 44 times the $5,200 median net worth of renters.
Purchasing a home involves both a financial and emotional commitment, as well as a long-term plan. Important considerations to help you reach a conclusion about whether it’s time to buy a home include:
Your five- to 10-year outlook. While you may not know exactly where you’ll be in a decade, it’s best to consider buying a home when you plan to stay in an area for many years and have a relatively stable career path. Financial experts recommend that you only buy a home if you plan to stay in it at least three years and preferably five years or longer. The average length of time most homeowners today keep their home before selling is nine years, according to the National Association of Realtors.
When you buy a home, you’ll be spending money on closing costs and a down payment. Recouping those purchase costs takes a few years of paying down your mortgage and, hopefully, watching your home increase in value. If you buy a home and sell it in a few years, you may not have built up additional equity in the property to cover your initial costs or the cost of selling.
Your readiness to be a homeowner. While financial security and steady employment are essential financial factors in your decision to buy a home, you also want to decide whether you want the responsibility that comes with owning a home. For many people, being able to change anything inside their home and commit to a community are benefits of buying. If you’re less certain that you want to maintain a property or are considering a move to another area, it may be best to rent for now.
Your financial readiness to buy a home. Getting financially prepared to buy is a two-step process. First, carefully analyze your budget, review your savings or other sources for a down payment and decide how much you would be comfortable spending on your housing payment. Include the principal and interest on the loan, property taxes and homeowner’s insurance, as well as condominium or homeowner association dues, in your estimated purchase payment and compare that to your current rent.
Second, consult a lender to get a preapproval for a mortgage and discuss how much cash you would need for the purchase. Many loan programs are available today with down payment options as low as 3% to 5%, so you don’t need to wait until you’ve accumulated a 20% down payment.
Compare your housing options. When you have your preferred budget and a loan preapproval in hand, you can work with a real estate agent to look at homes that fit your price range. You may want to look at both purchase and rental options, but keep in mind that your choice will have financial implications for your future. If you choose to buy, you’ll be building equity in your home as you pay down your mortgage each month. You may also be able to deduct some of your mortgage interest payments and property taxes from your federal income taxes.
At the same time, you need to budget for possible repairs and home improvement projects. If you rent, you don’t have maintenance costs, but you miss out on potential tax benefits and potential profits from selling.
Future-proofing your choice. Keep in mind your lifestyle choices and plans when you’re deciding whether to rent or buy. If you want to expand your family or continue to enjoy lavish vacations, make sure your housing budget doesn’t limit those choices. In addition, when you choose the house to buy, work with a real estate agent who knows the area well. A professional Realtor can help you identify a home that is more likely to hold onto its value in most market conditions for a future sale or be appealing to a future tenant if you decide to move but keep your property.
Whether you’re buying or renting, a Long & Foster Real Estate agent can help you find a home to love. You’ll also find representatives of Prosperity Home Mortgage, LLC, in most Long & Foster offices, as well as professionals with Long & Foster Settlement Services and Long & Foster Insurance. Together, they can help with your financing, settlement and insurance needs for buying, selling or renting a property.