WHY RENT WHEN YOU
CA AFFORD TO BUY?
There are some people who should rent rather than buy. And
there are solid financial and emotional reasons for doing
so.
On the financial side, if you have bad credit, can’t
afford the mortgage and upkeep of a home, and if you’re
not sure you’re going to be employed at the same company
throughout the application process (through the closing),
then you should probably hold off on buying for awhile. And,
of course, if you live in an area where you can rent a house
more cheaply than owning one, or if homes aren’t appreciating
there for one reason or another, renting may be the right
choice.
Credit problems alone can sink you. Mortgage lenders want
to see that you pay your bills on time each month. They want
to see that you’re responsible with the credit you’ve
been extended. If you’re late paying bills each month,
if you sometimes don’t send in a credit card payment,
it doesn’t look good.
Also, lenders like to see stability. They want you to have
been at your current job for at least one year and preferably
two. If you’re self-employed, they’ll take a harder
look at your tax statements, and business profit and loss
for the past two or three years. While lenders are more flexible
than before about job jumping, they could cancel your mortgage
approval if you change jobs or lose your job just before closing.
But for many first-time buyers, not buying a house isn’t
about your money. It’s about your feelings. And again,
there are perfectly legitimate emotional reasons to rent –
even if it would be cheaper for you to own your own home –
including:
Not knowing where you want to live. Neighborhoods and communities
are vital to homeownership. If you haven’t picked the
right spot, find a home to rent in a neighborhood you think
you might like and test it out for 6 months or a year.
The corporate transfer. If you’re going to move in
three years or less, it rarely makes sense (emotionally or
financially) to buy a home unless your company will pick up
your closing and moving expenses or buy your house from you.
Fear of income failure. Getting locked into mortgage payments
frightens some people. They’re afraid they won’t
earn enough money to pay the mortgage and have enough to eat.
While this is rarely true (in fact, some people spend 70 percent
of their take home pay on their rent and still manage to feed
and clothe their family), fear can sink a first-time buyer
trial balloon.
Tremendous debt. If you’re just paying off thousands
of dollars in credit card debt, school and auto loans, you’ll
finally feel the debt albatross loosen from around your neck.
You may not want the emotional ties of a mortgage until you’ve
been debt free for awhile.
Outsized expectations. If you’ve fallen in love with
a house or neighborhood you can’t afford, or need a
larger home than you can afford, then it will be difficult
to resize your expectations so that they are more in line
with your wallet.
The risks of homeownership. Like any financial investment,
buying a home isn’t a sure thing. And as the financial
experts say, "past performance is no guarantee of future
results." In other words, just because your neighborhood
jumped 50 percent in value in 5 years doesn’t mean that
it will do so this year – or ever again. Likewise if
you choose an adjustable rate mortgage (ARM) instead of a
fixed-rate mortgage, the interest rate will undoubtedly rise.
That knowledge alone may send you shivering in fear. And if
it does, you should either rethink your mortgage plans, or
continue renting.
Fear of commitment. It’s very difficult to say "I
do," whether you’re getting married or deciding
to make the biggest financial decision of your entire life.
It’s okay to be scared about buying your first home.
Give yourself time to get used to the idea. That way, you’ll
make the right choice, not bid on reflex.
Wendy and Karl finally got up the nerve to make an offer.
They didn’t get the first home they bid on, but they
were able to dispel some of the mystique that surrounds the
bidding process. And, like many first-time buyers who lose
a home, they will surely jump faster the next time they see
a home that meets all of their needs, and some of their wants. |
