Choosing
to purchase a home can be exciting and frightening at the same time.
There are many factors to consider when deciding whether to buy a house
or continue renting. First Heritage suggests considering the following
questions to help with your decision.
1. How much money do you have saved?
Start with an evaluation of your financial health. Figure out how
much money you have for a down payment and closing costs, or a deposit
on a rental. Down payments can be 5 to 20 percent of the price of the
home, but there are some government loan programs available with little
to no money down. Security deposits on rentals are usually about one
month of rent and more if you have a pet. But be sure to keep enough in
savings for an emergency fund. It’s a good idea to have three to six
months of living expenses to cover unexpected costs.
2. How much debt do you have?
Consider all of your current and expected financial obligations
like your car payment and insurance, credit card debt and student loans.
Make sure you will be able to make all the payments in addition to the
cost of your new home. Aim to keep total rent or mortgage payments plus
utilities to less than 25 to 30 percent of your gross monthly income.
3. What is your credit score?
A high credit score indicates strong creditworthiness. Both renters
and homebuyers can expect to have their credit history examined. While
your credit history doesn’t have to be perfect, a low credit score can
keep you from qualifying for the rental you want or a low interest rate
on your mortgage loan. If your credit score is low, you may want to take
steps to raise your score. Find tips on improving your credit score
here (link to credit tips page). The First Heritage team can help guide
you through the steps to improve your score so you can get started on
the path to a new home! Contact us with any questions you have!
4. Have you factored in all the costs?
Create a hypothetical budget for your new home. Find the average
cost of utilities in your area, factor in gas, electricity, water and
cable. Find out if you will have to pay for parking or trash pickup.
Consider the cost of yard maintenance and other basic maintenance costs
like replacing the air filter every three months. If you are planning to
buy a home, factor in real estate taxes, mortgage insurance and
possibly a homeowner association fee. Renters should consider the cost
of rental insurance.
5. How long will you stay?
Generally, the longer you plan to live someplace, the more it makes
sense to buy. Over time, you can build equity in your home. On the
other hand, renters have greater flexibility to move and fewer
maintenance costs. Carefully consider your current life and work
situation and think about how long you want to stay in your new home.
For more details and to discuss your specific situation, contact one of First Heritage’s mortgage experts.