If you are currently wondering if you should rent or buy a home, you should know that this is one of the most common questions we are asked. So, you are not alone! If you’re on the fence with your decision, here are five things to consider
1. Do The Math
It is very important to analyze the numbers and costs associated with renting versus buying a home. When conducting your analysis, it is important to analyze the costs associated with both sides. On one hand, you have the option of renting which involves a security deposit and often times first and last month’s rent. You also have a monthly rent obligation. One thing we recommend you do is get a monthly estimated mortgage payment and compare that with the monthly rent.
On the other hand, there is the option of buying a home. With this option, you will have a down payment for your home loan and some closing costs along with a monthly mortgage payment. These are all figures that we can help you figure out if you reach out to us. While the down payment and closing costs are usually higher than your security deposit and first and last month’s rent, you would be surprised at how similar your desired rent and monthly mortgage payment might be. There are even instances where homeowners end up having a lower mortgage monthly payment than their previous monthly rent!
In addition, there are some further benefits that homeownership provides for you to take account of that impact the numbers. Perhaps the most important would be the fact that you are building equity every month. This can have a significant impact on your long term wealth when comparing that to paying monthly rent with no equity building. Well, there is equity being built but unfortunately it is being built by your landlord using your rent! Let’s cover a few more of the benefits of homeownership next.
2. Know the Benefits
As I mentioned, there are a few additional benefits of homeownership that you should know about. The first one Is the ability to write off your annual property taxes. Another benefit, that is similar, is the ability to write off your mortgage interest on your taxes as well. The combination of these two write offs can save you thousands if not 10’s of thousands of dollars over the course of time! There is also a homestead tax exemption you can take advantage of to reduce your taxes on a primary residence. In addition, veterans and veterans with disabilities can qualify for even further tax savings. Make sure you reach out to us today so we can discuss all of the benefits of homeownership in further detail.
3. Know Your Credit and Optimize It
One of the most important factors of getting home loan approval is your credit score. It is important to know what that is well ahead of time. While there are plenty of great online tools to use such as credit karma, nerdwallet and others, we have found that this type of tool often has a margin of error. It is always best to talk to a mortgage professional to get a more accurate credit score and financial picture. You can also visit annualcreditreport.com for one free credit report per year.
Knowing your credit score ahead of time offers a few distinct benefits. The first is that it will give you enough time to make any necessary improvements to raise your score. A good loan officer can analyze your overall financial situation and make relevant suggestions to improve your score and overall loan approval chances. The second advantage is that you will have enough time to remedy any irregularities or mistakes that sometimes appear on credit reports. It usually takes a few months to dispute and remove these items from your credit report which is why knowing ahead of time is so important.
After figuring out what your credit score actually is, the next step is to improve it as much as possible. Remember, a higher credit score can lead to more options for loan products, a lower required down payment, and a better interest rate. So, optimizing your credit score is a very important step in becoming a homeowner.
4. Research Mortgage Options
The world of mortgages is often a difficult one to navigate. There are many types of lenders such as banks, mortgage specific banks, and brokers. Each one offers a unique advantage. It is important to start reaching out to different lenders while you are still renting so you know your options and what you need to do to qualify well ahead of time. We know it is tempting to go online and fill out a few forms relating to a mortgage. There are plenty of websites out there that provide mortgage related info. However we have found that the information these sites provide is often inaccurate or too broad. It is a good idea to speak to an actual person who can help you with your unique financial situation.
Exploring mortgage options ahead of time also gives you the opportunity to compare options, interest rates, loan types and more. Establishing a relationship with a good mortgage professional early in the process is also a good idea. They will be able to provide valuable information to put you in the best position possible when it comes time to buy your home. If you would like us to introduce you to a great local lender, please reach out to us and we would be happy to make the introduction.
5. Think About The Long Term
Buying a home is a very large financial decision for most people. For many, it is the largest single purchase of their life. That is why it is important to think about this decision with the long-term in mind. Do you see yourself living in Chicago for the next 3 years or more? This is often the first question we ask potential home buyers during a consultation. If the answer to that question is “yes”, then the option of buying a home and taking advantage of all the benefits is a much more likely fit for you.
You should also have the long-term in mind when considering what type of property you are purchasing. For example, if you are a young family looking for Chicagoland properties for sale and expecting to add some children in the near future, it is probably not a good idea to buy a small one or two-bedroom condominium as opposed to a 3 or 4 bedroom house a little bit outside of the city. Important life milestones definitely should be a contributing factor in your decision as to whether you rent or buy as well as what type of property to purchase.
As I mentioned, there are many important things to consider when going from a renter to a homeowner. While these are some of the more important steps, there are certainly other ways you can prepare that we simply cannot cover in one article. We would be happy to provide a no obligation consultation for you and lay out a game plan to set you up for success!