With home prices on the rise, you may be considering renting instead of buying, but is this really the best use of your money? Here’s the REAL answer: Generally, buying is better than renting, if only for the simple fact that you’re building equity in a home that you will eventually own (which will hopefully appreciate in value), free and clear. But this isn’t always the best decision.
Here are a few simple steps to see whether you should buy or rent:
- Are you planning on living in the area for awhile? If yes, proceed to Step 2. If no, renting may be the right choice for you.
- Choose the area(s) in which you’d like to live and the number of beds/baths you’ll need.
- Figure the average home price in these areas for the type of home you need. Ask a Realtor® to assist with this info.
- Take this average home price. Are enough funds in your account for a downpayment? Although a 20% downpayment is ideal and saves you from having to pay P.M.I. (primary mortgage insurance), this amount can be difficult to come by. For those who qualify, there are available loan options that require deposits as low as 3.5% or possibly lower.
- If the resulting numbers seem too high, renting for a period of time and saving money to build a downpayment might be the best way to go.
- If there IS money in the bank to comfortably afford a downpayment, it’s time to contact a lender to see what kind of a loan you qualify for and to get an official pre-approval.
*I am looking for a two bedroom, 1 bath single family residence (house) in Anytown, California.
*The average price for a 2bd/2bth in this area is $650,000
*Calculate the necessary downpayment:
a. 20% of $650k = $130,000
b. 3.5% of $650k = $22,750
*I have $85,000 in the bank, so I know I comfortably afford at least a minimum downpayment.
*I contact a full-time Realtor® who refers me to an excellent lender.
*I contact my lender of choice to see what kind of a loan I can qualify for and get a pre-approval.
*After receiving the pre-approval, I begin looking for my dream home.
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John Aaroe Group