Sense & Centsibility Blog

To Buy or to Rent?

When searching for your next home, should you buy or rent? There is no right or wrong answer, but definitely some things you will want to consider.

  1. Do you want to stay in the area or do you want flexibility to move around? Do you want to stay in your next home for more than 5 years or have the ability to move after 1 year?
  2. What is the current housing market like in your area? Are prices soaring and bidding wars common or are prices at an all time low?
  3. Do you want to be responsible for repairs and maintenance on a home? If you're not handy, consider maintenance costs before purchasing a home. These expenses can add up fast!

What is included with payments?

Mortgage Payments

Most mortgage payments will cover principal, interest, taxes and insurance. However, you may be able to choose to not have your taxes and insurance included. This will allow you to have a lower monthly mortgage payment, but you will need to pay the taxes and insurance on your own.

Rental Payments

Be sure you verify what is covered with your rental payments. Some might include utilities, like electric and water.

Financial Considerations Before Buying a Home

How do you know if you’re ready to buy a home? Some signs you are financially ready to purchase include:

  1. a stable income,
  2. 6-8 months of living expenses in emergency savings,
  3. no desire to move again in the next 2 years and
  4. money saved for a down payment.

Credit and Homebuying

Having a higher credit score will allow you to qualify for a mortgage loan with a lower interest rate and payment. An interest rate difference of 1-3% may not seem like a lot, but over a 15 to 30-year term it can really add up. 

Down Payments

How much down payment do you need to buy a home?The amount you will need for a down payment will depend on the type of loan you are taking out. Keep in mind if you are putting less down you will have a higher loan to value ratio and on a conventional mortgage you will have to pay private mortgage insurance if you are putting less than 20% down.

Pre-qualification VS Pre-approval

Pre-Qualified is when the lender has decided that you will likely be approved for a loan up to a certain amount based on unverified information you have provided them. Being Pre-Approved means you have actually been approved by a lender for a specific loan amount. With a pre-approval the lenders have reviewed documented financial information like pay stubs, bank statements, and credit reports. 

Mortgage Rates

Mortgage interest rates and closing cost can vary from one lender to another. Therefore, shopping around and applying with multiple lenders will allow you to find the best loan option for you. As long as all of your applications are within a 45-day window it will only count as one credit inquiry. 

Real Estate Agents

You can purchase a home without a real estate agent. In fact, according to Bankrate, 10 to 15 percent of home sales each year are done without a Realtor. Even though there is no legal requirement to use a Realtor, hiring an agent can be beneficial. With their expertise and knowledge they will be able to help you navigate the housing market and find your dream home quicker.  They can provide you facts about the neighborhood, negotiate the sales price and help you secure financing. 

First-time Homebuyer Mistakes to Avoid

  • Talking to only one lender
  • Taking out the max loan amount you are approved for
  • Underestimating hidden cost of homeownership

If you’re considering buying a home in the future, schedule a meeting with a certified housing counselor with LSS Financial Counseling. We work with Minnesota home buyers long term to get financially ready and informed about resources and options before purchasing a home. Call 888.577.2227 to schedule your free appointment today or visit our website for more information.

The content of this blog was written by Tasha Symiczek, a certified LSS Financial Counselor. All questions are a part of Experian’s weekly Twitter chat.