How far can one month's rent get you as a homeowner? If you've ever wondered whether you should keep renting or buy a home, you're not alone – as rent increases, more and more MN residents are asking themselves the buying vs. renting question. It helps that buying a home can have serious advantages over renting – for some renters-turned-homeowners, rent money turned into additional square footage, an extra bedroom or bathroom, or even a backyard.
As it turns out, buying might be the better option for you. To find out for yourself, watch this video hosted by our Homeowner Development Manager, Pa Lor:
If any of those added home benefits sound appealing to you, check out these nine signs you may be ready to buy a house.
1. You always pay rent on time
When renters buy a home, they typically take on a mortgage payment similar to their monthly rent payments. One of the bigger challenges tends to be covering a down payment. Many mortgages require down payments between 10 and 20 percent of the purchase price of the home, though loans for eligible first-time buyers through the Federal Housing Administration (FHA) require 3.5 percent of the purchase price.
TCHFH Lending, Inc. offers a mortgage product that doesn’t require a down payment, only closing costs and some savings. Additionally, monthly mortgage payments are kept affordable – at or below 30 percent of your income.
2. You have a credit score of at least 580 (but preferably higher)
When considering applying for a mortgage, checking your credit score should be one of your first steps. This number tells lenders whether or not you’re reliable in making payments and managing current debt. Though a credit score of 580 is an acceptable score for some lenders’ mortgage products, a score of 620 would likely get you an even better mortgage rate in the traditional mortgage market.
The preferred credit score for a mortgage with TCHFH Lending, Inc. is 620, but credit scores between 580-620 or invisible/no credit are acceptable with alternative credit documentation.
3. You've got minimal debt and you're not living paycheck-to-paycheck
You'll need to show proof of steady employment to qualify for a mortgage. And while you won't be able to calculate closing costs, property taxes, utilities and other costs related to buying and living in a home just yet, you shouldn’t be spending more than you can afford on your housing payments. Things like vehicle loans, student loans, credit card debt, etc. can add up. It’s important to keep these in mind as you consider taking on an additional loan.
To qualify for a mortgage with TCHFH Lending, Inc., monthly debt payments must be no more than 13 percent of your gross monthly income.
Some financial advisers recommend saving aside a fund that can cover three months of expenses, but six months of savings would be even more ideal for those unexpected costs. This may also provide greater peace of mind, should an unforeseen event like a job layoff occur.
You may also run into unexpected “up-keep” expenses, like fixing broken appliances. Having some savings will come in handy if and when those unpredictable home maintenance projects happen.
4. You're ready to put down roots
First time homebuyers typically stay in their first home at least five to seven years. Twin Cities Habitat homeowners stay in their homes for nearly 30 years on average. Plans change, of course, but to make the most of your decision, it makes most financial sense to stay in a home for at least a few years.
5. You're worried about rising rent
Because rented spaces are managed by someone else, renters don’t always know how long they’ll be able to live in their apartment. Landlords and management can increase rent, ask you to leave, or kick you out at almost any time. “With renting, it often feels like you are at their will,” says Pa. “Homeownership offers security and stability." When you own a home, you can be more sure of what your next month will look like, financially and mentally.
The TCHFH Lending, Inc. mortgage product payment is set for 30 years. You may see increases in homeowners’ insurance and property taxes, but what you pay towards principal and interest on your mortgage won’t change.
6. You've picked out a neighborhood and maybe even a house
This is one of the major indicators that you’re ready to consider homeownership. Picturing yourself in a home with your family can help you see the future and motivate you to work actively toward achieving it. Even when renters aren’t sure about where to move, they can often pinpoint what they want in their buying vs. renting debate. What's at the top of their lists? Extra bathrooms and bedrooms, a larger kitchen and a backyard.
7. You're okay with cutting back personal spending for a while
Oftentimes, new homeowners will find they have to temporarily give up some things they've become accustomed to or cut back on other expenditures for at least a few months. Eating out, going to the movies, getting takeout – some of your favorite ways to spend money might have to wait for a little while until you're settled in the new place.
When moving into a new home (especially a starter home), it's wise to prepare for new expenses, including cleaning supplies, tools, paint, window treatments, rugs, and a lot more. Suffice to say you'll be making frequent trips to the hardware store.
8. You want to start building equity
Paying rent doesn't build equity. “All of your rent payments go to the property manager," Pa says, "and there is nothing that you can take or build as you make those payments.”
Home equity is the difference between how much your house is worth today and the amount you owe on it. As a homeowner, every mortgage payment you make towards your home is building equity. Even your down payment is equity!
9. You're not afraid to do your research on mortgage options
The internet has transformed the mortgage industry, as it has many other industries. But this transformation has also resulted in a deluge of information for consumers to wade through as they contemplate buying vs. renting.
Instead of feeling overwhelmed, listen to the recommendations of people who have found the lending options and wise counsel they were looking for through the Twin Cities Habitat for Humanity Homeownership Program. Their positive, encouraging words could be the strongest sign of all on your buying vs. renting list.