Rental rates are getting higher and higher and there is no relief in sight. This leaves renters with a high monthly bill and no return on their investment. It seems like renting is a good way of managing your finances, but is it really? Making the leap from renter to homeowner is intimidating but ultimately might save you some money and will definitely benefit you financially in the long run.
Over 85% of Americans who rent their home consider their monthly rent to be a tremendous expense. Little do these renters know that about 75% of them are able to afford their own home and their payment would be less than what they are paying in rent. So how do you make this leap? How do you know if it is more cost effective for you to buy instead of rent? Here are a few easy steps to find out if you are able to make the leap from renter to homeowner.
Do your research
If you are curious as to how much a property in a certain price point would cost monthly to buy, most home search engines have a mortgage calculator on the site. You might be surprised to see that a mortgage is just about what you’re currently paying for rent, a little less or maybe just slightly more than what you’re paying. If you’d prefer to talk to someone in person or over the phone, call a local real estate agent or local bank to see what mortgage programs are available and the housing inventory available in your area within your budget. Making the leap from renter to homeowner might not be as difficult as you imagined once you speak to an expert. You could meet with a mortgage broker at your local bank to go over your finances to see what kind of mortgage you could qualify for given your income and current debt. Check out our blog “Hidden Costs of Buying a Home” so that you are financially prepared for buying a home when the time is right.
Save, Save Save…
It is a common misconception that you need 20% of a home’s price as a down payment or else you can not buy a house. It is great if you have 20% to put down but in actuality, to qualify for a mortgage you could only have to put down as little as 3%. Only 3% of a home’s price is a much less intimidating number to come up with than 20% of the home’s price. The amount you need for a down payment depends on the mortgage you qualify for. For instance, if you’re a veteran, there’s a VA loan that does not require any money down.
Who knows, expecting to only put down 3% on a home you might already have your down payment in your savings account and you don’t even know it! If you do not have any savings, put a little away each month, cut down on unnecessary expenses by only going out to dinner half as often and it will add up! The sooner you start saving, the better. With the demand of rentals going up, it will only cause your rental rate to increase. Many renters find themselves in a situation where their rent is too high to let them put any money away in savings. This situation makes saving up for home ownership an impossible task. For tips on how to save for your down payment, check out our “Home Buyer’s Guide to Saving for a Down Payment.”
Do a Credit Check-up
Your credit score is an essential piece to the home ownership puzzle. Your credit tells a lender how likely you are to make timely payments on your mortgage. This information helps them decide if they will give you financing on a home. Stay on top of your credit score and check your report periodically to make sure that it contains accurate information. There is a free app and website called Credit Karma which allows you to monitor your credit for free. Sites like Credit Karma are handy because they give you a general idea as to where you stand with your credit, but it is a good idea to check your full credit report occasionally especially when considering a big purchase such as buying a home. The free credit report sites only give you one or two credit bureaus (out of three), so you will get an idea if your credit is poor, fair, good or excellent but not an exact score.
Our blog Clean Up Your Credit Score to Buy a House can help you make the changes necessary to make you more desirable to lenders by increasing your credit score. The best thing you could do to keep your credit score from falling is making timely payments on all of your accounts. Delinquent payments will make a huge impact on your credit that could take months to remove from your score. In addition to your score, many credit report sites will tell you what you can do to improve your score. For example, carrying a balance that is more than 40% of your credit limit will decrease your credit score. Length of credit history and number of open accounts also impact your score. It is important to familiarize yourself with what your current credit situation is so that you can strengthen it for when the time comes to apply for a mortgage.
Make the Leap from Renter to Homeowner
It is a wise move to prepare for home ownership while you can when renting. Over the last couple of years there have been fewer rentals available creating a huge demand and increase in the cost to rent. This situation is only made worse by the fact that contractors are not building as many rental units as they had in the past. Take a look at your finances to see how much you can put aside on a monthly basis to go towards a down payment.
Studies have shown that home ownership contributes to overall satisfaction in quality of life. Therefore, owning a home instead of spending all of your money on rent in a home with no return on your investment, could make you happier in general. That being said, maybe it’s time to consider taking the leap and finally go from renter to homeowner! Contact our team at Leighton Realty today to go over your options and see if home ownership is within reach!