Deciding whether to buy a home or rent an apartment can be a complicated decision. How do you know what’s right for you? Potential buyers should know what to ask when buying a house to renting an apartment. Here are questions you should consider before making this important decision:
What will monthly costs be, and can I afford the payments?
Keeping mortgage payments under 30 percent of your monthly income is a good rule of thumb. If you can’t keep mortgage payments below that, you may be better off renting.
What other debt do I have?
Total rent or mortgage payments — as well as any credit obligations — should not exceed 35 to 40 percent of monthly income.
What is my credit score? Can I qualify for a good interest rate?
A high credit score indicates strong creditworthiness, and that qualifies you for lower mortgage interest rates. Maxing out credit lines and paying bills late will lower your credit score. The impact of a credit score on interest rates can be significant. For instance, a borrower with a score of 760 could pay nearly two percentage points less in interest on a mortgage than someone with a score of 620. Lower interest rates mean lower monthly payments. If your credit score is low, delaying a home purchase is the right move until you can take steps to improve your score.
What do I need to do to increase my credit score?
The single most important thing is to pay your bills on time. How much you owe also factors into your score, so be sure to pay down your loans sooner rather than later. New credit and the type of credit you have affects your score as well. Instead of constantly switching credit cards, do your research beforehand to pick the option that’s best for you. Also, monitor your credit score to make sure that all of the information is up-to-date and accurate. You can get a free credit report each year from annualcreditreport.com.
How much will taxes, monthly maintenance, or other fees cost?
Owning a home means you’ll have to pay real estate taxes and other costs like insurance and routine maintenance. On the other hand, owning a home brings big tax savings annually. As a renter, the owner pays those costs for you.
How many years will I stay here?
Generally, the longer you plan to live someplace, the more it makes sense to buy. You’ll build equity in your house and its value will likely increase over the years.
Deciding to buy a new home requires a lot of time and consideration. Visit our online Mortgage Center to learn more about the process of purchasing a new home.