Choosing between renting or buying a home is not an easy decision. While owning a home is everyone’s dream, renting a property comes with its own advantages, especially in terms of lower cost. However, there are several things to consider when choosing between the two.
Here are a few of them:
Cost-Specific Factors
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Budget
Before deciding whether to rent or buy a home, you must calculate how much you can save, excluding your living and monthly expenses and emergency funds.
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Credit Score
Once you have determined your budget, review your credit score. Your credit score should be higher to get approved for a mortgage with lower interest rates. If it is low, wait until it improves. Otherwise, your mortgage interest rates will be exorbitantly higher, making it difficult for you to manage the expenses.
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Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is the percentage of what you contribute to your debts (credit card debt, auto loans, and insurance premiums) from your gross monthly income (before taxes). According to Credit.org, a good debt-to-credit ratio is 36% or less. So, ensure your DTI ratio falls under the par limit.
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Down Payment and Closing Costs
Before some years, 20% of the property’s price was demanded as a down payment, but now you can pay 3% of the purchase price, depending on your loan type. However, if you pay a lower down payment, your loan debts will be more. Besides the down payment, you will have to pay closing costs, which could be anywhere from 2% to 5% of the loan amount.
Future Goals and Wants
Your long-term goals and where you will be in the next five years play a vital role in helping you make a better decision. You can sell your home or buy it from your current lease. Do not spend your time and money unless you are sure of what you want. If you know you are going to live in the same location for five or more years, you can think about buying a home. Otherwise, renting is a good option.
Advantages and Disadvantages
Generally, you will choose a home based on your budget, the space required, desired location, the current housing market, etc. However, you must consider other factors, like nearby amenities and additional living costs associated with buying a home. In rental properties, the landlord will take care of the maintenance and upkeep of common or shared spaces, so you can save a considerable amount. However, you can buy a home if you want to own an asset.
Once you’ve bought or rented a home, don’t stop there. Make sure to insure it against potential risks!
Protect Your Residence with Action Insurance
At Action Insurance Group, we offer both home insurance and renters insurance to residents in and around Vancouver, WA. Contact us today to protect your property with extensive coverage.
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