Renting vs Buying

Considerations and steps to take before buying a home

For the past several years, it’s been widely known and accepted that a majority of potential home buyers have opted to rent a house as opposed to buying a home of their own.  The primary reasons for this shift in the real estate market, is that for a number of years, it has been generally cheaper to rent than to buy; and also, coming out of the Great Recession, many people who wanted to buy a home in Lakeview couldn’t due to life-circumstance issues such as a job loss, decreases in earnings, and not failing to mention that many mortgage lenders had raised loan approval standards, making it nearly impossible for many good quality home buyers to get loans. Needless to say, a variety of economic factors had made buying a home difficult.  

Fortunately for everyone, times are changing and it’s now easier to buy a home than it has been for the past ten years.  Lenders are making home loans again, interest rates have continued to remain affordable, and as home prices have risen over time, fewer investors are snatching up available real estate inventory purely for the purpose of converting them into rental investment properties.  So, while the answer may have been clear for the last decade, in today’s improved real estate market, the age-old question is coming back to the surface:  “Is it better to rent or to buy?”

Buying a Home Inst Always an Option

For some people, renting is still their only viable option.  But for a significant portion of the population, buying a home is finally becoming attractive again.  In a way, it’s almost unfortunate that home prices are up in most markets, demand is high, and days on market for homes for sale gets shorter and shorter all the time.  This is because the cost of home ownership is higher now than it was five years ago.  But it didn’t matter much when homes were cheap because most interested home buyers couldn’t qualify for a home loan.  Cash became king, and lenders pulled back bigtime, raising loan standards to almost astronomical levels, which, in a way was strangling their own business.  How can a mortgage company survive if they’re not making loans.  Honestly, many of them didn’t.  But the ones who are making loans today are offering attractive terms that are finally pulling many potential home buyers off the fence and getting them back into the real estate buying market.  

Deciding to Rent or Buy

In deciding between renting vs buying, it has always been the consumer’s first choice to own their own homes.  If for no other reason than not having to live under someone else’s thumb.  When you rent, you can’t paint without permission.  You can’t upgrade your home, build on additions, or make many of your own decisions.  For a person renting a home, the landlord is almost always the controlling factor.  When you own your home, it’s nice to be able to make decisions without first needing the landlord’s permission.  Now, getting your spouse’s permission to upgrade or paint your house may still be a challenge, but I’d much rather debate home improvements with my spouse than with my landlord any day.     

Conversely, although the market has rebounded and renters are slowly becoming buyers again, there are some situations in which it isn’t yet possible for a renter to buy a home.  For example, you may need to remain a renter a little longer if you are:

Still fixing your credit:  Many lenders will only consider a credit score of 620 or better. So take the next year or so to catch up on any delinquent accounts, and then open one or two rotating credit accounts for which you will make the payments on time.

Still saving for a down payment:  If it has been longer than seven years since you last owned a home, you may be able to qualify for a first-time home buyer FHA loan with a 3% down payment. However, even on a $200,000 home, that is still $6,000. And then, there are the closing costs. If you don’t have this money saved up, start putting it away now with a goal date in mind for having the full amount saved.

Still trying to get your feet planted:  Now more than ever, lenders look at a potential borrower’s employment profile before approving them for a loan. If you are new to your job, that could easily be a strike against you (especially if your income fluctuates. Lenders want to see that your salary is stable, not sporadic). It is best to have been with your current employer, or at least in your current field, for two years before applying for a home loan.

There are many good, hard-working people renting out homes today; those are the kinds of renters who will, eventually, bridge the gap between renting and home ownership.  If you want to be on the path to home ownership, now is probably a good time to consult your local REALTOR.  Talk with a mortgage lender to find out (for free) if you qualify for a home loan.  Save up money for a down-payment, generally between three to ten percent of the purchase price.  Run your credit report on one of the free online sites and make sure it looks good before going into the mortgage lender’s office.  If you find any problems in your credit, take time to get things fixed before you apply for that new home loan.  If you are still working on any of the above tasks, then you may need to remain a renter for a little longer. But it isn’t permanent; just stay diligent on hitting your goals and you will soon be able to reach the milestone of home ownership.

If you still have questions about what it takes for YOU to buy a new home, always remember that your local REALTOR is there to give you sound advice and point you in the right direction.  Make your choice before housing prices increase too much.  Get down off the fence early, investigate loan options before interest go up, and if really want to buy instead of rent, consult your REALTOR for advice.