5 questions to ask yourself before you stop renting
Every month, as you write out your rent check, you may wonder if your hard-earned money would be better spent buying a place of your own. The idea of putting money into something you own is appealing (as is knowing that you can paint the walls any color you want without landlord approval), and you’re probably tempted. But then you think about what a huge commitment owning a home is and, suddenly, paying rent doesn’t seem like such a bad idea.
You’re right to weigh your options: Becoming a homeowner is an enormous step, but it also has a lot of benefits — when you’re ready to take the plunge. If you’re having trouble figuring out what’s best for you, ask yourself these five questions.
1. Would I be saving money if I owned my place?
Do some light research on what your monthly mortgage payments would be. Then use a rent vs. buy calculator to see how much you might save if you bought instead. Keep in mind your monthly mortgage payment won’t be your only recurring home-related expense: You will have homeowners’ insurance, property taxes, and potentially an HOA fee. But as a homeowner, you may qualify for a new set of tax deductions.
More than 20 million Americans spend 30% or more of their paycheck on rent.Tweet
— The State of the Nation’s Housing 2016, Harvard University
2. Can I make lifestyle changes, if needed?
Even if your mortgage payment would be cheaper than rent, unexpected expenses always crop up when you own a house. According to mortgage firm Freddie Mac, a good rule of thumb is to estimate spending 1–4% of your home’s value per year on maintenance and repairs, depending on how old it is. And you may have to deplete some of your savings for the down payment. But, owning a home is often exactly what you’ve set out to save for — talk to a lender about what you can realistically afford, and you should be able to comfortably make your payments, and keep an emergency savings fund.
3. How big of a deal breaker is location?
If you’re living in a hot downtown area, it may be hard to buy a home there, which is often why people move to the suburbs, or up-and-coming urban renewal and community reinvestment neighborhoods. While homes appreciate faster in cities — according to Realtor.com, as of January 2016 urban homes have seen their value grow by 11.3% vs. just 6.7% for suburban dwellings — you’ll probably have less square footage of living space and less of a yard (which isn’t a bad thing if you’re opposed to yard work). There are pros and cons to both city and suburban living, so just make sure to think hard about which is best for you. It’s also a good idea to talk to friends and family who live in areas where you’re considering buying a home.
4. Can I afford the utilities?
And we’re not just talking about the cable and Internet bills, services you can live without (maybe). If you have to pay the utility bills alone, like electricity and water, will you be able to? Or do you anticipate renting a room to help cut costs? Keep in mind if you plan to buy something bigger than what you currently rent, your utility costs will most likely be higher.
5. Can I see myself living in the same place for the next five to seven years?
When it comes to buying a house, a good rule of thumb is to think about if you’ll be there for five to seven years. If so, buying can be a smart move: If you hold on to your home for a while, it can be a great investment, especially if you make improvements that increase the home’s value.
Wells Fargo’s easy-to-use calculator can help you assess if renting or buying a home is right for your finances.