Deciding to buy a house, especially your first one, can be a daunting decision! Sometimes it may be better to rent something depending on your circumstances and your area. In this post, I am going to help you decide whether it is time to buy your first house.
Deciding whether to buy a house or rent an apartment can be a difficult choice! There’s so much pressure to move forward in life and it can be so hard to navigate. As someone who has recently been through the process of getting my first place, I am going to give some guidance on making this big decision!
These ideas can help you evaluate your situation to see what is right for you.
This post is about knowing when to buy a house or rent an apartment.
How To Know If You Should Buy Or Rent
#1 Look at your savings account
When it comes to buying a house, there are so many unexpected expenses that you may not think about if you haven’t done this before! You’re going to have to have a down payment, pay for an inspection, have an appraisal, and pay realtor fees. These can add up, and that’s just to get the keys to the house! Let alone furnishing, repairs, and HOA fees. When I looked at buying a house, my down payment was about $12,000 altogether. So, that would have taken ALL of my savings so far, which is why I decided to rent.
#2 Determine a reasonable monthly payment based on your income
According to some financial gurus, your mortgage payment including taxes and insurance should not exceed 25% of your monthly income. For example, if you bring home $4000/month, your mortgage payment should be around $1000/month. This is a good guiding principle to let you know how much house you can afford. If you have your savings in order like I mentioned in step 1, this is going to be so incredibly attractive for you! However, it can be easy to look at $1000/month and say “I’d rather do that than pay more in rent.” BUT, like I said previously, if you do not have savings over your required real estate fees, renting might be better. Especially because a rental deposit is often cheaper that real estate transaction fees.
#3 Evaluate the market you are looking to move into
Location is a big factor when deciding to buy or rent. You have to evaluate the amount of inventory available versus how many people are looking to buy. This was a big issue for me when moving to Charleston, SC. The market here is so saturated with buyers and there isn’t much inventory available. So, that means that people often offer cash or above the asking price. This can make it difficult for a first time home buyer to compete with seasoned investors. This was another reason I chose to rent, it was just easier to work with an apartment complex rather than sellers looking for the best offer.
#4 Work with a lender to determine your pre-approval rate
I advise that if you are looking to buy a house, go ahead and meet with a lender and have them draw up a general pre-approval letter. They will ask you questions like:
- What is your total income?
- How much debt do you have?
- What is your debt to income ratio?
- What recurring monthly payments do you have?
Be prepared to send over financial documents that prove these numbers. They will run an inquiry on your credit to get an accurate credit score as well. This won’t affect your score too much, so don’t worry. However, if you are actively working with a lender, I don’t recommend opening any new lines of credit until the process is complete.
#5 Evaluate all unexpected moving costs
Moving is EXPENSIVE. There are so many things to account for. For example, buying containers to move your stuff, hiring help, or renting a truck. All of these expenses add up quickly. If you are barely able to pay your real estate fees, these could break the bank or put you into credit card debt. This is another reason why I wanted to rent, I wasn’t going to have the available cash to do it all at the same time. Now, I’m able to spend money here and there without going into more debt.
I’m not a finance professional, so please consult someone you trust to help you make these decisions. These are ideas to help get your mind going in the right direction on what works best for you. This post was all about whether to buy or rent!
