Should I Buy or Rent?
HOW TO DECIDE
WHETHER TO BUY OR RENT
Five questions every potential buyer should ask
WASHINGTON, D.C. – It may be a
“buyer’s market,” but current fluctuations in the economy and the housing
market can
complicate the decision whether
to buy a home or rent. How do you know what’s right for you? Potential
buyers should
ask themselves several key
questions before making this important decision.
-
What
will monthly costs be, and can I afford the payments?
Keeping mortgage payments under 30 percent
of your gross monthly income is a good rule of thumb. If you can’t keep
mortgage payments to less than that
percentage, you may be better off renting for awhile.
-
What
other debt do I have?
Total rent or mortgage payments plus credit obligations should not
exceed 45
percent of gross monthly income.
-
What
is my credit score?
Can I qualify for a good interest rate? A high credit score indicates
strong
creditworthiness, and that qualifies you for better interest rates on
your loans – whether they are mortgage loans or
credit card loans. Maxing out on your credit lines and paying bills late
will lower your credit score. The impact of
your credit score on an interest rate can be significant. For instance,
a borrower with a score of 760 could pay
three percentage points less in interest on a mortgage than someone with
a score of 580. Lower interest rates also
mean lower monthly payments. If your credit score is low, you may want
to delay buying a home until you can
improve your score.
-
How
much will taxes, monthly maintenance, or other fees cost?
Owning a home means you’ll have to pay
real estate taxes and other carrying costs like insurance and
maintenance. On the other hand, owning a home
brings big tax savings at the end of the year. As a renter, the
owner pays those costs for you.
- How many years will I
stay here? Generally, the longer you plan to live
someplace, the more sense it makes to
buy. You’ll build equity in your house and its value will increase over
the years.