5 Questions To Ask Yourself When Youre Trying To Decide Whether To Buy Or To Rent

5 Questions To Ask Yourself When Youre Trying To Decide Whether To Buy Or To Rent

I often talk to people who are trying to decide if they should buy or if they should rent.  Here are 5 questions you can ask yourself to help your decision.  

Can I buy?   

Most people finance their home purchase, so the first question to ask yourself is, do I qualify for financing?  A lender can give you a good idea of whether you can purchase in about 10 minutes over the phone.  Is there a good program for you?  Is there a zero down option?  If not, what do I need to save up for a down payment?  Do I need some credit repair?   Self Employed buyers often write off substantial amounts of their income on their taxes.  A lender can only use the income you DON’T write off so if you’re in that boat, you may need to amend your taxes, or wait to file the next year, in order to claim enough qualifying income for the price point you’d like to be in.  

2. Does the price point I am comfortable in/ qualified for, in the area I’d like to be in, have homes that I would be interested in?

 Some areas, like Fort Collins for instance, have seen pretty high appreciation in the last several years.  This is great for the area…and current homeowners, but it has priced some buyers out of the market.  So if you pre-qualified to/ feel comfortable with an $180,000 purchase price…you might have a hard time finding something you like single family wise.  Condos are sometimes difficult to finance so you may be out of luck.  There are surrounding areas that are less expensive so you would need to decide if you’re comfortable living outside of Fort Collins  

3. How long can I commit to living in this house?

Real estate should be considered a “long term savings plan”.  Not a short term one.  If you think you might move in 2 years….renting may be the better option.  Also, the market cycles; if you buy on the upswing you may need to commit a little more time.  If you buy when the markets at rock bottom…you may be able to sell in a year and a half.  The general rule of thumb is that you should be able to commit to no less than 3 years (preferably 5) and if you can’t…you might consider renting.   

4. How stable is my income? 

What happened to a lot of people when we went through this last recession, was they lost their income, had bought at the top of the market and were upside down in their homes.  This led to all the short sales and foreclosures we saw from 2007 through 2011.  How stable is your income situation?  If your household income is largely dependent on a good economy (Real Estate Agents, Builders and Lenders ironically falling into that group) then renting might be a better option.  Or buying at a level you can maintain even if we have another recession and your income goes down.  If your income is stable regardless, then buying may be your better option.  

5. What is the rental market like compared to the housing market? 

Currently the rental market in the Fort Collins area is tough….the housing market is also tough.  It’s very price point specific as well. Greeley’s a different story.  Understanding rental pricing, vacancy rates, home inventory, average market time etc; will help you to make an educated decision about whether buying or renting is the better option.  Most real estate agents will happily do a market overview for you and I think it’s very important to making a decision. 

Buying or renting is a huge financial decision and can have long term financial ramifications.  A good purchase helps you build wealth, stability and gives you many ancillary benefits.  Your auto insurance will be lower.  You get to write off your mortgage interest on your taxes.  You will eventually build equity and therefore net worth.  A bad purchase can end in foreclosure which will affect you for years.  Be educated, ask questions and make an informed decision. 

Sarah Rowan Headshot
Phone: 970-397-5774
Dated: October 27th 2014
Views: 618
About Sarah: Sarah was a licensed real estate agent for 10 years before transitioning into the mortgage industry ...

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