If you have been renting and wonder when the best time is to buy a home, the decision on when, where, and how much you can afford, can be overwhelming. If you are a first-time homebuyer, it is rarely an easy decision. How can you pinpoint the best time to explore homeownership?
Since the pandemic, we have experienced a real estate boom where home prices reached an all-time high. Mortgage rates have also recently increased, so you may think of waiting for home prices or rates to come down.
But is renting a better alternative? Rents continue to soar along with inflation – and are likely to continue to rise due to a persistent housing shortage. Homebuyers are not at the mercy of landlords since they lock in a mortgage rate on THEIR home and build equity with every house payment. Renters, however, will see their rents rise as landlords pass on their costs and raise rents. Renters do not build any equity but rather build equity for the landlord’s property.
So, what's the better choice for you? While there are several things to consider when it comes to buying versus renting, luckily, you don’t have to do it alone. Reach out to me to schedule a free consultation and I’ll help walk you through your options and the process. You may also find it helpful to ask yourself the following questions:
1. How long do I plan to stay in the home?
You'll get the most financial benefit from a home purchase if you own the property for at least five years. If you plan to sell in a shorter period of time, a home purchase may not be the best choice for you.
There are costs associated with buying and selling a home, and it may take time for the property’s value to rise enough to offset those expenditures.
Even though housing markets can shift from one year to the next, you’ll typically find that a home’s value will ride out a market’s ups and downs and appreciate with time. The longer you own a property, the more you are likely to benefit from its appreciation.
Once you’ve found a community that you’d like to stay in for several years, then buying over renting can really pay off. You’ll not only benefit from appreciation, but you’ll also build equity as you pay down your mortgage – and you’ll have more security and stability overall.
Also important: If you plan to stay in the home for the life of the mortgage, there will come a time when you no longer have to make those payments. As a result, your housing costs will drop dramatically, while your equity (and net worth) continue to grow.
2. Is it a better value to buy or rent in my area?
If you know you plan to stay, put for at least five years, you should consider whether buying or renting is the better bargain in your area.
One helpful tool for evaluating your options is a neighborhood’s price-to-rent ratio: just divide the median home price by the median yearly rent price. The higher the price-to-rent ratio is, the more expensive it is to buy compared to rent. Keep in mind, though, that this equation provides only a snapshot of where the market stands today. As such, it may not accurately account for the full impact of rising home values and rent increases over the long term.
According to the National Association of Realtors®, a typical U.S. homeowner who purchased a single-family existing home 10 years ago would have gained roughly $225,000 in equity — all while maintaining a steady mortgage payment.
In contrast, someone who chose to rent for the past 10 years would have not only missed out on those equity gains but would have also seen U.S. rental prices increase by around 66%. So even if renting seems like a better bargain today, buying could be the better long-term financial play.
Ready to compare your options? Then reach out to schedule a free consultation. As a local market expert here in Dallas/Fort Worth, I can help you review the numbers to determine if buying or renting is the better value.
3. Can I afford to be a homeowner?
If you decide that buying a home is the better value, you’ll want to evaluate your financial readiness.
Start by examining your savings. Depending upon your 401k plan and your goals, this might also be an option for additional funds. After committing a down payment and closing costs, will you still have enough money left over for ancillary expenses and emergencies? If not, that’s a sign you may be better off waiting until you’ve built a larger rainy-day fund.
Then consider how your monthly budget will be impacted. Besides your monthly mortgage payment, are there any other additional expenses going forward to plan for? Property taxes, insurance, association fees, maintenance, and repairs are also new expenses if you have been renting.
Even if the monthly costs of homeownership are comparable to renting, you are building YOUR home’s equity and not the home equity for your landlord’s property. You also have annual mortgage tax deductions you can explore that also help with offsetting homeownership costs.
Plus, even though you’ll be in charge of financing your home’s upkeep if you buy, you’ll also be the one who stands to benefit from the fruits of your investment. Every major upgrade, for example, not only makes your home a nicer place to live; it also helps boost your home's market value.
If you want to buy a home but aren’t sure you can afford it, give me a call to discuss your goals and budget. We can give you a realistic assessment of your options and help you determine if your homeownership dreams are within reach.
4. Can I qualify for a mortgage?
If you’re prepared to handle the costs of homeownership, you will want to know what a lender considers in providing pre-approval for a mortgage.
Every lender will have its own criteria but they all will review your job stability, credit history, savings, and debt to ensure you are able to handle a monthly mortgage payment.
For example, lenders like to see evidence that your income is stable and predictable. So if you’re self-employed, you may need to provide additional documentation proving that your earnings are dependable. A lender will also compare your monthly debt payments to your income to make sure you aren’t at risk of becoming financially overextended.
In addition, a lender will check your credit report to verify that you have a history of on-time payments and can be trusted to pay your bills. Generally, the higher your credit score, the better your odds of securing a competitive rate.
Whatever your circumstances, it’s always a good idea to get pre-approved for a mortgage before you start house hunting. If you would like referrals to some great local lenders, let me know. I have some great loan officers and mortgage brokers that are great at explaining your options.
5. How would owning a home change my life?
Before you begin the preapproval process, however, it’s important to consider how homeownership would affect your life, aside from the long-term financial gains.
You will be investing more time and energy in owning a home than you do renting one. There can be a fair amount of upkeep involved, especially if you buy a fixer-upper or overcommit yourself to a lot of DIY projects. If you’ve only lived in an apartment, for example, you might be surprised by the time you spend maintaining a lawn.
On the other hand, you might love growing your very own garden, making HGTV-inspired improvements, or grilling and entertaining outdoors. The pride of ownership is amazing!
The choice – like the home – is all yours.
The decision to buy or rent a home is among the most significant you will make in your lifetime. I will make the process easier by helping you compare your options using real-time local market data. So don't hesitate to reach out for a personalized consultation, regardless of where you are in your deliberations. In some situations, the time might not be right to buy but you will be better prepared for what you need to become ready to buy.