If you’re wondering whether it’s better to rent or buy, we’ll fill you in on a secret: homeownership is an excellent investment. We’ve covered all the reasons before (read them here), but current interest rates and market conditions have us ready to attack the topic again. Homeownership is one of the best ways to build long-term wealth, secure housing for your retirement, and build towards a financially stable future.
Renting Vs. Buying: Homeownership is A Great Investment
If you can afford to purchase a home, you’ll be investing in your future. Instead of throwing away your money on rent each month, you’ll be paying down a mortgage instead. Thirty years from now, you could still be paying rent, with nothing to show for it, OR you could own a home free and clear. Imagine the financial freedom of living without a mortgage or rental payment!
Many people choose to purchase a home because of the stability it offers. Owning your home means you’ll never have to worry about rising rents or overbearing landlords. You can paint the walls whatever color you please, and there’s no such thing as a pet deposit.
Sure, there are other factors to consider (no landlord means you’re on the hook if something breaks). Bit historically, real estate is a safe investment that generally increases in value over time.
Right now is the ideal time to buy a home. Interest rates are lower than we have seen in decades, meaning homeownership is within reach for those who never thought it possible.
When Buying Isn’t the Right Choice
It’s not always better to buy. In rare cases, putting off homeownership might be the best decision. If you aren’t financially independent, expect to move within the next two years, have a great deal of debt, or don’t have stable employment, owning a home might not be the right choice.
Often, people choose to continue renting if they have poor credit or large amounts of debt. In these instances, it might be wiser to focus on paying down debt, increasing your credit score, and saving for a down payment while continuing to rent.
Once you improve your credit score and get your debt-to-income ratio under control, you will qualify for a lower-interest loan. Even a small decrease in the interest rate can save you tens of thousands of dollars over the life of your mortgage. In this case, putting off buying a home is a better financial decision in the long-term.
There are also other instances when it’s better to rent than buy. Consider all your options carefully, and consult with a financial advisor, lender, or real estate agent for more information.
Should I Rent or Buy?
There are many factors to consider, including your job stability, financial situation, geographic location, relationship and familial situation, and future plans. However, if you are ready to put down roots – and have the means to do so – homeownership is a great investment.
Talk with a lender or local real estate professional. You can learn more about the real estate market in your area and decide whether you should rent or buy.
You can also use this calculator to help determine if you can afford a mortgage.
How You Can Purchase a Home This Year
So you’ve decided to purchase a home. Congratulations! Before you get the keys to your dream home, there are a few things you’ll need to do:
- Secure a down payment. Without at least 20% of the home’s price down, you will likely have to pay private mortgage insurance (PMI), which can add hundreds to your monthly payment. However, some programs allow buyers (particularly first-time homebuyers) to get a mortgage with minimal money down. Talk to your real estate agent or a reputable lender to learn more about your options.
- Pay off as much outstanding debt as possible. The less debt you have, the higher your credit score. That credit score impacts your ability to get lender approval for a mortgage. It also determines your interest rate. If you have a large amount of outstanding debt, consider how you might consolidate your debt or pay it off before purchasing a home.
- Decide where you want to live. Choosing where to live is one of the most important decisions in the homeownership process. Homeownership is worth the cost only if you plan to stay in one location for several years, so think carefully about several factors: commute time, local schools, access to medical centers if necessary, shopping options, local entertainment, and future building plans for the area, for starters.
- Hire a Realtor. An experienced real estate agent can help you find a reputable mortgage lender and then help you find the home of your dreams.
Homeownership is one of the most critical steps you can take to securing financial independence. It’s part of the American Dream – and there is nothing quite like walking through the door of your very own home.