Should you rent or buy?

Whether your rent or own, housing is probably one of your largest expenses. Because of this, you may wonder: which option is better for me? 

Unfortunately, there’s no clear answer that applies to everyone. Your financial situation, local housing market, and plans for the future, all contribute to your specific rent vs. buy scenario.

Here are some things to keep in mind if you are trying to decide whether to rent or buy: 

  • Consider your finances 
  • Research your local housing market 
  • Think about your future 
  • Run a rent vs. buy calculation  
  • Find a trusted advisor

Consider your finances

First, you need to be clear on your financial situation when deciding to rent or buy. What’s your credit score? How much outstanding debt do you have? How much money do you have in savings for a down payment? What is your current monthly rent or mortgage payment? 

One of the most important questions to ask yourself is: are you comfortable financially? If you answered no, determine what would need to change for you to be comfortable. 

Homeowners are generally more financially comfortable

A recent Freddie Mac survey found that in general, homeowners are more financially comfortable than renters.

If you’re currently renting, buying a home can be a great long-term investment. However, as shown in this survey, not every homeowner is financially secure. Owning a home is not a magic cure for improving your finances. 

How much should you spend on housing? 

As a rule of thumb, experts suggest spending no more than about 30% of your gross monthly income on housing expenses. 

Therefore, if you make about $4,000 per month before taxes, your rent or mortgage payment should be about $1,200 a month.

Research your local housing market

The housing market is hyper-local, so you need to do your research about the specific neighborhood you’d like to live in. Consider what homes are selling or renting for, and how competitive the market is. 

Think about how much money you should be spending a month on housing (see the 30% rule, above). Would you be able to comfortably afford a mortgage payment in your desired neighborhood? Or would paying rent be a better financial decision for you? 

Think about your future

When making the decision to rent or buy, you also need to think about your future. If you’re planning on living in a home for just a year or two, purchasing may be cost prohibitive, due to upfront taxes and fees. However, if you intend on living somewhere long-term, paying rent every month may end up hurting you in the long run. 

Although you can’t know for sure how long you’ll live in a home, you can estimate. This will help you determine if it’s worth your investment to purchase a home. 

Run a Rent Vs. Buy Calculator

There are many free rent vs. buy calculators, that will help you visualize the difference between renting and buying. 

Rent vs. buy calculators include many helpful pieces of information, such as how long you need to live in a home before it becomes cheaper to buy instead of rent. Although not perfect, these calculators can help you decide what makes the most sense for you financially. 

Find a trusted advisor

Deciding whether you should rent or buy is a big decision, and something you will probably reevaluate a few different times in your life. You don’t have to approach this on your own though! Finding a trusted advisor, who is very familiar with your local housing market is a great way to decide if renting or buying is a better choice for you. Reach out to a trusted real estate agent or loan officer, and they will be more than happy to sit down and discuss your options. 

Bottom Line 

Deciding if it makes more sense for you to rent or buy is one of the first steps toward becoming a homeowner. There are many variables that make up each person’s housing situation and no perfect answer. However, I hope that you found these tools and suggestions helpful as you consider your options. 

How Can You Improve a Credit Score for Mortgage Loans?  

One of the first ways to improve a credit score for mortgage loans is by examining what factors make up a credit score. From there, you can determine the best practices that will then help turn a score from “eh” to “excellent.” 

Dispute Mistakes 

Mistakes happen, even when it comes to credit scores. Because of this, it’s important that you dispute any fraud or incorrect information. This will improve a credit score for mortgage borrowers, and is a relatively easy way to turn a credit score around. 

Pay Off Collection Accounts 

The presence of accounts in collection are an instant red flag for lenders. Focusing on paying off collection accounts, no matter how old the account is, or how much is owed will very quickly improve a credit score for mortgage loan qualification. 

Improve Your Credit Utilization

If your credit utilization is too high, the easiest way to address this is to pay down some accounts, and use less of your credit line every month. However, this isn’t always possible. If you face high credit utilization, you have a couple of options. You could ask for a credit limit increase from your creditors, which would expand your ratio. Otherwise, you could also open a new credit card, and commit to keeping the balance at zero. Both of these methods may have short term negative effects on a credit score, but they will improve a score over the long term. 

Pay On Time, Always 

Paying bills on time may feel like the most basic of credit score tips, but that’s for good reason: it works! Late payments are an instant way to damage a credit score. Therefore, if you truly want to improve your credit score, encourage them to make a habit change. 

Become An Authorized User On Another Card 

It may feel like a drastic measure, but if you are facing a poor credit report, you could become an authorized user on someone else’s credit card. This other, well-managed credit will appear on your credit report, and can improve a credit score for mortgage applications. It’s important that the balance of this card is always paid off, and the payments are always on time–otherwise, you will face even more problems than before. 

Bottom Line 

There’s no doubt that credit scores are important, especially when it comes to getting approved for a mortgage. Improving your credit score can send you on your way to purchasing your dream home. 

And just remember, credit score isn’t everything! If you are struggling with a poor credit report or other roadblocks to qualifying for a mortgage, there are resources available to help you.