When the rent check is due, does it feel like you're pouring money down the drain? Are you spending your free time swiping through different real estate listings, or do you dream about spending Saturday mornings at Home Depot picking things out? If the answer to all these questions is yes, then it might be time to consider stopping renting and buying a home. However, buying a home isn't as simple as just finding a place to rent. It's a huge investment, but that doesn't mean that it's purely going to be a financial decision. You may be seeking more space for a growing family, or you could be craving the community aspects that come with living in the suburbs. Or maybe you're just feeling ready to check off that next list, a major milestone. That being said, it's typically going to be recommended to start with an objective framework, then it's going to help you answer the question, am I financially ready to buy a home before factoring all these emotional reasons. Because your heart might say, hey, I'm ready to buy that house, have a backyard, but your wallet might tell you we can't afford it right now. You may want to think past the dreamy aspects of owning and really take a look at the financial commitments they're are going to be involved with purchasing a home. Are you financially prepared to buy a home? In this video, you're going to learn about the five common signs that answer may be yes. Number 1, your budget is big enough to cover the expenses. These expenses may include but aren't limited to a down payment, closing costs, mortgage payments, property taxes, homeowner's insurance, private mortgage insurance, maintenance fees, and even HOA fees along the way. How can you budget for these upfront and ongoing expenses? One way is to take a good, hard look at the average expenses for these costs in the area that you plan to live and plan to buy a home to get a sense for what your home-related expenses would be and how they impact your finances before taking the leap. You also want to make sure that you don't forget to factor in any estimated home repairs along the way as well as maintaining a properly funded emergency fund. Some other costs that you may want to keep in mind would be any renovation expenses. These repairs or renovation expenses can be based on the condition of your home, or they could just be upgrades that you want to make once you move in. It's really easy to get excited after watching an episode of Fixer Upper, but certain repairs can get pretty pricey and they may involve a ton of time to complete. It's very important that you understand both the financial and the time commitments before taking on any of these projects. Number 2, you plan on staying put for a while possibly giving your home a chance to appreciate in value. Buying a home typically signals more of a commitment to a certain location than renting. If you sell a place and move out too soon, depending on the market conditions and the timing in that area, there could be a chance that you barely break even if not lose money due to real estate commissions and other fees that come with buying and selling a home. If you can see yourself staying put in your new home for a while, then it might be a sign that you should start shopping for a home. If you think that you're not going to be in the same place for a while, then you may want to think twice about buying a home and explore some different ways that you can rent where you live. Also, look at different ways and how you can delay this and how that would impact your finances. Number 3, you itemize your tax deductions and you're likely to benefit from writing off mortgage interest. Tax season isn't always going to be a drag for homeowners. When you own a home, your personal finances might actually benefit from writing off the mortgage interest. This is going to be an upside that only exists for homeowners related to their mortgage though there will be some other tax-related implications when it comes to owning a home. Ones like this have a positive impact on your overall finances. In order to qualify for the deduction, taxes need to be itemized. For some individuals, this could mean that claiming the standard deduction isn't necessarily worth it versus others may benefit from itemizing, and every single person's situation is different. You should look at whether or not this would apply to you, and you should consider consulting a tax professional who may be able to provide some additional insight or guidance as to whether or not you would benefit from deducting your mortgage interest. Number 4, you have good credit which can help you qualify for better loan terms. Your awesome credit profile may have an advantage for you when you're applying for a loan and looking for a place to live. The credit that you may have spent years building might actually pay off more as a homeowner than when you're renting. This could include improved lending terms such as interest rates, money put down, things along those lines. Generally speaking, the better your credit score, the more options that you're going to have when you apply for a loan. If you spent years building your credit and your credit score reflects that, then you might be financially ready to buy a home. Credit score requirements are going to vary from lender to lender. It's really important to understand and shop around so you can see what your credit score is going to mean for your interest rate in different terms among lenders. Number 5, rents are sky-high0 relative to home prices in your area. In many markets, the rising price of rent can make buying much more enticing than ever before based on the unique conditions and circumstances in the area that you're interested in. This could be reflected in a large number of major metropolitan areas in different states across the country and it means that over time, it might be a smarter move to invest your money in buying a home versus renting. When you bring this all together, there are some high-level advantages and disadvantages when it comes to the decision of buying a home versus renting a home. Some of the advantages of renting may include but aren't limited to. Number 1, your lan [inaudible] is typically going to be responsible for repairs and maintenance. That money can go elsewhere since you don't need to pay for it. Your landlord may also pay some of your monthly utilities and you aren't responsible for directly paying your property taxes when you rent. Also when your lease is up, maybe six months or 12 months, you can simply renegotiate or move if you want. You have additional flexibility when you're renting. You also don't need to make a big investment such as a down payment or closing costs that would be associated with buying a home when you move into your next place when you're renting. Some disadvantages of renting include but aren't limited to, your landlord, maybe they put restrictions on you that you may not necessarily like, maybe refusing to allow pets, or don't allow you to make some remodels that you want to make. On top of that, the rent that you're paying every month doesn't give you any equity or ownership in the property. It's just going to go to the owner, unless, of course, you set up a lease with an option to buy agreement. You can also still feel like you're stuck when you're renting because there's going to be a lease period. You may not have ultimate flexibility from month to month unless you have that type of an arrangement with your landlord. Some of the advantages of buying include but aren't limited to as you make a mortgage payment and depending on the market conditions, you could be gaining equity in your home every single month. Also, you're going to have far fewer restrictions around things like remodeling, pet ownership, and so forth. You're also going to have additional stability and you could stay as long as you like, barring any unusual circumstances like eminent domain, and you don't have any worries about the owner of your house selling the property while you're living there without your notice because you are the owner and sometimes a mortgage payment can be cheaper than what you're currently paying in rent. Some of the disadvantages buying, you typically need to make a down payment and pay closing costs to get into a home, and that can be pretty expensive, generally looking at this as an investment and you're responsible for all your repairs made, homeowner's insurance, property taxes, and other fees such as HOA dues. If you decide to move until you sell your home, you're still going to be responsible for those mortgage payments along the way. Would when you're renting. As you think through this decision, consider the five common signs that might indicate that you're ready to buy a house, then you should analyze the pros and the cons of each of these options. It could also be helpful to utilize a rent versus buy calculator as you weigh the financial implications of both of these options.
