Buying a home is a huge economic choice to make in your life. Sometimes it might not be the right choice right now, and renting might be a better option. There are many factors to consider when thinking about buying a home, such as debt, income, needs, and goals. In this article, we will go through each of these factors to determine if it is the right time for you to switch between rent to buy and buy to rent.
Debt and Income
This section is combining both debt and income since they go hand in hand. To pay off debt, you need to have an income, and if you don’t have an income, you might be accruing debt. If you have credit card debt or student loans, that is ok and it doesn’t mean that you cannot get a home mortgage. However, lenders need to know that you’ll be able to make your monthly payments on both loans, which is why your income matters. Lenders will look at your debt-to-income ratio (DTI), which is the monthly amount of your income that covers your debts. The maximum DTI ratio that many mortgage lenders consider for a Qualified Mortgage or QM is no more than 43% an article of RPM Mortgage said.
You don’t have to eliminate your debts to take on a mortgage. Lenders will consider you for as long as you have a steady income or reliable source to pay for your monthly payments.
However, if you have a DTI ratio above 50%, this still doesn’t automatically disqualify you, but it will mean you have to look outside of conventional mortgages. If you aren’t comfortable with over 50% of your monthly income going towards your debts, it might be better to consider renting until you can pay off more of your current loans or until you can make more money through a second job, extra hours, or a promotion.
In America, homeownership is the dream, but is it really what you need? There are many benefits to buying a home, such as building equity or settling down somewhere. However, there are many ways our society can peer pressure you into homeownership even though it might not be what you need. The Balance gives five reasons for buying a home and five reasons not to buy a home. Many of them have to do with debt and income, which we’ve already covered. Two of the reasons given why you should buy a home are to build equity or get a tax break. Reasons for not purchasing a home are if you plan to move or want to save for repairs or improvements. It also mentioned that even if you qualify for a mortgage it doesn’t mean that you should do it.
Societal pressure to buy a home can be almost as crushing as getting married or having children before you’re ready. It signals to people that you are in a new phase of life, but sometimes it isn’t worth keeping up with the crowds. Consider the question: Do you need to buy a home? If you don’t need to buy a home or don’t need the home you currently live in, consider renting to meet your needs.
Whether you are looking to buy a car or pay off your student debt or afford a wedding, there are other great goals to have in life that are also expensive. If you are trying to save up for retirement, prepare for a child, or save for a college fund, sometimes those long-term goals outweigh wanting or needing to buy a home. Having other plans is important and if saving for a down payment or home improvements are some of them, that is also great. It just means that you probably cannot go on that trip to Europe or buy that expensive handbag or max out your 401K like you thought you would because your goals have changed.
Thinking about your goals is crucial because you can actively decide how you work towards them. If you want that trip, maybe it is best to rent for the time being until you are ready to save for a house. Or, if you are tired of paying a mortgage on a home you barely use, it could be time to consider downsizing or renting a place instead of wasting money that could be working for you elsewhere.
If you want to start looking into moving from renting into buying, make sure to talk to one of our Loan Advisors to get more information.