It’s many people’s dream to own their own home. Recent figures show that the recent downturn has not put people off. In fact, there has been a near-record increase in homebuying during the pandemic.
But in the decision of buying vs renting a home, there are many factors to consider. Let’s have a look at a few of these factors and the steps to buying a home.
This will help you to answer the question – which one is right for you?
Buying vs Renting a Home – The Pros and Cons
Buying a home comes with some clear advantages. It’s yours, and you can renovate or decorate it without asking anyone else’s opinion. It’s an investment and potentially something to leave to your children.
However, there are also some cons to take into consideration. When you own your own home, the buck stops with you.
Every leak and every creak is your responsibility to fix. The landscaping comes out of your pocket. So do major projects like repairing or replacing the roof.
But that’s not to say that renting a home is all sunshine and roses. It’s true that it’s simpler – you hand over your rent cheque, and the landlord takes care of the rest. You just handle the utilities, and repairs and landscaping are someone else’s responsibility.
The downside is that you don’t own anything. At the end of your lease term, you hand over the keys, and your association with the house is over. Plus, you’re liable for rent increases as time goes by.
It’s true; there are pros and cons to each. Most people, though, will still happily take on those responsibilities in exchange for having a place to call their own.
Costs of Buying a Home
For many people, affordability is a major factor. On paper, a mortgage might look very affordable. Mortgage repayments may even be lower than rent. But there are other costs of buying a home to take into consideration.
Costs on Purchase
When buying a house, you have to pay closing costs. These include:
- Mortgage application fee
- Attorney fees
- Escrow deposit
- Owner’s and lender’s title insurances
This is just a snapshot of some of the costs involved. The nationwide average for these costs in 2020 was $6,087, including tax. This is on top of the purchase price of the property.
You will also need to have significant savings to make a down payment on the property.
Most people hire professional movers to help them move to their new homes. This can cost anywhere from $1,000 to $5,000+ depending on how far you are moving.
There is also the cost of furnishing, buying appliances, and potentially decorating a new home to take into consideration.
How to Buy a Home
You’ve weighed up different factors and have made your decision. The battle of renting vs. buying a home has come down in favor of buying. Know you need to know how to buy a home.
The first thing to do is get your finances in order.
You’ll need to talk to a licensed lender to get an accurate picture of how much you can afford to spend on a property. However, there are a few general guidelines that can give you a good idea:
- Check your credit score – ideally, over 620 is best
- Down payment – ideally at least 20% of the value of the home
- Closing costs – calculate 2-5% of the home’s value
- Debt-to-income ratio – lenders typically look for less than 36% monthly spend on all debt repayments
Along with this, you need to calculate the costs of running your own home. This includes maintenance, repairs, and landscaping. It can run to another 1% of the home’s value each year.
If you’re thinking of buying a condo, these costs are usually bundled into one monthly fee. This can help you to evaluate how much you can afford, although bear in mind these may rise from year to year.
Prepare for your first meeting with a licensed lender by gathering all your financial information.
This includes all monthly outgoings. Think credit card repayments, personal loans, and other obligations. Also, provide detailed income statements.
Once you are pre-approved for a mortgage, you can start house hunting!
Find Your Perfect Home
Find a high-quality realtor in your target location and discuss your requirements with them.
They have a deep insight into the local area. They can advise you on price ranges, schools, and amenities. They’ll also guide you through the buying process.
Once they know what you’re looking for, they’ll take you to tour homes in the area. They’ll help you through the process of making an offer and negotiating the contract.
When Is The Best Time to Buy a Home?
Every buyer wants to know the best time to buy a home to maximize their investment. Traditionally, late summer and fall have been a good time to buy. There are usually more houses for sale and fewer buyers on the prowl than earlier in the year.
However, areas and market conditions vary from year to year. Talk to your agent about the state of the market locally.
Benefits of Buying a Home
There are so many benefits to buying a home beyond the security of homeownership.
You can also better take control of your finances, as your monthly payments are more stable than when renting. You can build equity in the home and build your credit rating month by month.
In most parts of the country, over time, you will save money by owning your own home. There are also tax advantages, such as deducting your monthly interest repayment from your tax returns.
Buying vs Renting a Home: Which Is Right for You?
There are definite advantages to both buying and renting a home. But if you can afford it, in the battle of buying vs renting a home – buying wins.
If you’re thinking of taking that step, start with a detailed look at your finances. Find out what you can afford. Then comes the fun part – choosing your new home!
The Liz Luke Team of Long & Foster Real Estate is here to help you make your homebuying dream a reality. We specialize in pairing Alexandra, VA buyers with their perfect home.
Click here to talk with a real estate expert today about making your dreams a reality.