RENT VS BUY: How to tell if homeownership is right for you
To buy or not to buy. It’s a question many people struggle with. And, it’s important to know if you truly want to own a home before you’re firmly entrenched in the homebuying process. Wondering if homeownership is right for you? Here are some things to consider about renting versus buying.
It costs less - When budgeting for homeownership, you’ll have to factor in more than your monthly mortgage payments. Consider condo maintenance fees and repair expenses, too. Tenants don’t have to sweat those costs: they’re the owner’s responsibility.
Your money is more accessible - Homeowners have the satisfaction of knowing their property is likely to increase in value over time, but for the short-term, their major asset is on lockdown. If you need to sell your home during the first few years of homeownership, you could lose money given the various costs involved, such as REALTOR® fees and possible fees for breaking a mortgage.
It’s a sound investment - If you choose a home you can afford, the payoff can be great. When you make a mortgage payment each month, you build equity in a place of your own (unlike a rent payment). Equity is the difference between the value of the home and your outstanding mortgage. Assuming that your home continues to increase in value, then the longer you stay in your home (and the more payments you make), the more equity you’ll have.
It‘s a first step - As you build up equity in your current home and comfort level in being a homeowner, it may be easier to move up to another home in the future.
It provides satisfaction and security - As a homeowner, you can decorate and renovate your home any way you like. You don’t have that luxury as a renter. Owning a home also gives you the pride of ownership. Your family may also feel stronger ties to your community. Ultimately, the decision to rent or buy is a personal one. Do what’s right for you, at the time that’s right for you. If you choose a home you can afford, the payoff can be great.
ARE YOU READY FOR HOMEOWNERSHIP?
Take this simple quiz to find out if you’re ready to start your FirstHome journey. Read each question and answer it honestly. Then read the tip below it to get you on track for homeownership.
1. Are you familiar with the real estate market in your preferred neighbourhood?
Start perusing online well before your house hunt. You don’t want any surprises when meeting a real estate agent and finding out homes in your preferred community are way out of your price range.
2. Do you know how much you can afford to spend on your first home?
Determine how much you can afford. Estimate your mortgage using by factoring in items such as you income, debt, utilities and other mortgage related expenses and monthly payment amounts.
3. Have you saved enough for at least a 5% down payment towards your first home?
Conventional mortgages require a down payment of 20% of the purchase price. With Sagen mortgage insurance products, you can buy with as little as 5% down.
4. Do you have a regular income source, whether you are salaried or self-employed?
Sagen’s Business For Self Program is geared at self-employed borrowers. If you’ve got a two year history of managing your credit and finances responsibly, you can qualify without traditional income verification.
5. Do you have a credit history?
Lenders look at credit history to determine if someone is a reliable borrower. If you don’t have a credit card, establish good credit by acquiring a credit card. Use it for small purchases and pay off the full balance each month.
6. Do you have a healthy credit score?
Poor credit makes it harder to get mortgage approval. Always meet your monthly minimum payments on time, but don’t stop there. Be aggressive about clearing your credit card debt, or at least bringing each credit card balance to under 35% of its credit limit. If you’re recovering from bankruptcy, apply for a secured card to help re-establish a pattern of responsible borrowing.
7. Have you got a handle on your consumer debt?
A high debt load could hinder your ability to meet your financial obligations. Your monthly debt repayments (housing, car, credit cards, lines of credit, etc.) should not exceed 40% of your household’s gross monthly income. If you’re carrying more than that, be aggressive about paying it down so you’re set up for success when you start your homeownership journey.
Next week we will look at what first-time homeowners need to know about responsible homeownership.
Article Credit: Sagen resources such as this guide are designed to help homebuyers make financially sound choices. Check out their online resources at sagen.ca for more!