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Choosing whether or not to rent or buy a home seems like a no-brainer for some. After all, many people are of the mindset that owning a home is a great financial decision, namely because it brings with it a tangible asset and is something that can be sold in the future. But, owning a home is not always the best option, especially in the short-term. Here are some things that should be considered:
How’s Your Credit?
You need to consider your credit score. If you find out that your FICO score happens to be below 620, you will need to realize that any loan that you obtain to purchase your home will come with a high interest rate. Some banks may even refuse you a loan, meaning that you may have to seek out a loan from a less than reputable company. If you happen to have a poor credit score, you should try and improve it first before you seek out a loan.
Is Your Job Secure?
You should consider the security of your job. Is there any risk of being laid off in the future? If you do happen to be laid off, how easy would it be for you to obtain a new job with a comparable salary?
Another thing to consider is the prospect of a job relocation. The last thing that you want to do is to purchase a home and then be told that you’re going to be relocated to another city. If your company has many offices in other areas, you could be at risk.
You should be confident that you’re going to be located in the same area for awhile if you decide to plant roots. Even if you sell your home, you may be taking a loss if not much time has passed since you purchased it.
Does the Home Need Much Maintenance / Repairs?
If you have to put a lot into the home to fix it up before you consider it to be “livable,” you should consider renting a home instead. Furthermore, if your home needs a great deal of upkeep, such as through maintaining and cleaning the grass, swimming pool, and/or garden, you will have to see if you have the budget to handle all of this.
Do Some Basic Math
Consider your potential mortgage costs on your new home in comparison to the rent. If each monthly mortgage payment is three times the rent, you should probably consider renting the home at this stage. You should talk with your accountant to see which scenario makes more sense for you.
Regardless of which option that you choose, remember that you should never live out of your means. Try and have as much cash on hand available if you decide to purchase a home. Make sure to always have emergency savings. There’s no shame in renting a home. It can simply make financial sense! Thinking long-term has its advantages, even though instant gratification is what many seek.