There are numerous advantages to purchasing a home. As you pay down your mortgage, you’ll be able to build equity and eventually own your home outright. The value of your home will increase, and you’ll have more freedom to customize it the way you want.
The benefits of owning a home are undeniable, but they aren’t for everyone. For the time being, renting may be the best option for you. Here are six reasons why.
You don’t have an emergency fund
It’s critical to have an emergency fund in place before making a home purchase. When you no longer have a landlord to take care of repairs, you’ll need to use your emergency fund to cover those costs. In the event of a decrease in your income, it may keep you out of foreclosure.
You may want to put off buying a home until you’ve saved enough money in a high-yield savings account to cover several months’ worth of expenses.
You haven’t saved up a down payment
A 20% down payment is recommended when buying a home. The more money you put down, the more loan options you’ll have and the better interest rate you’ll get. In addition, you may be able to avoid paying an additional monthly payment for private mortgage insurance. When a down payment is less than 20%, lenders are protected from losses in the event of a foreclosure by charging this fee.
A 3 percent to a 10% down payment is usually required by mortgage lenders even if you can’t put down the full 20%. That means that if you don’t have enough money saved for a deposit, you’ll either have to wait until you do or accept a higher interest rate and a smaller pool of lenders.
3. Your credit score needs work
With a credit score of around 500, you may be able to get a mortgage, but you’ll have a very limited number of lenders to choose from. You may have to take out a loan with a higher interest rate or a higher upfront fee.
Even if your credit score is at least 620, it may be best for you to continue renting until you improve your credit rating and qualify for a better mortgage.
You’ve recently changed jobs
Lenders may be concerned about your ability to make mortgage payments in the event of a job loss. It will be more difficult to secure a low-interest mortgage loan after a recent career change.
Renting for a few months after a career change will help you build the type of stable employment history lenders looks for. Buying a house is best done after you’ve worked at your current job for at least one year and ideally two years.
Buying would put you over budget
If your monthly housing costs would exceed 30 percent of your income, or if they’re significantly higher than the rent you currently pay, you may want to put off purchasing a home. Overspending on housing payments could leave you unable to accomplish other goals, such as saving for retirement.
6. You aren’t sure if you’ll be staying put for at least a few years
To sum up, renting may be a better option if you aren’t sure you’ll be in your home for at least two years, preferably longer. As a result, you could end up losing money on the sale of your home, or owing more in capital gains taxes if you manage to sell it for a profit.
You may want to consider renting until your financial situation improves, or until you know you’ll be staying in one place for a long time after purchasing a house.