This is a common question being asked by renters in the real estate market right now. With home prices continuing to rise and inventory remaining low, many may feel that they will be priced out of the market soon. Although this is a common feeling for many renters, the decision of whether or not to buy a house is multifaceted. Although buying a home allows you to build equity in your investment, it also comes with additional maintenance costs. At the same time, renting provides you more flexibility while not building any home equity. We will highlight a few of the factors that should be taken into consideration below.
Some questions to ponder
- Will you qualify for a mortgage? Unless you have enough money saved to purchase a home with cash, you will likely need to obtain financing for a home purchase. The first step you should take should be to contact a mortgage broker to determine if you would qualify for a mortgage. If the answer is yes, then you will need to also determine the amount you qualify for. Job stability, credit history, and savings are some of the important factors used when qualifying for a mortgage.
- Can you afford the closing costs? Although many people think about saving for the down payment when purchasing a home, closing costs are often not accounted for. Unfortunately, buying a home involves more money than simply the down payment. Closing costs are used to pay for appraisals, inspections, and other items. These costs can even add up to 3% or more of the purchase price.
- Can you afford the location? When considering the overall cost of home ownership, the price of insurance, property taxes, and homeowner’s association dues will vary by location. In some cases, some of these costs may even exceed the amount of the mortgage. It is critical to do your due diligence on a specific neighborhood to determine the actual cost of home ownership. A knowledgeable real estate agent should be able to guide you in this area.
- What is your estimated time horizon? When buying a home, you should plan on staying at the property for at least 2 or 3 years. Otherwise, it is more likely that you will end up losing money in the transaction. It is important to remember that it costs money to sell a home as well. In addition, to marketing costs or real estate commissions, you will also have closing costs as well. Oftentimes, your time horizon may be dictated by your occupation. Perhaps you are expecting a promotion that will relocate you within one or two years? These are important factors to consider.
- Are you ready to handle property maintenance? One major advantage of renting is the lack of concern over general maintenance and repairs. For example, if the HVAC system needs replacement this can easily cost approximately $5,000 to replace. As a tenant, you simply have to inform the landlord of the issue and it is not your responsibility (unless the lease agreement states otherwise). As a home owner, you will want to be sure to maintain a good amount of savings to cover any unforeseen maintenance issues that may arise. If you are handy and prefer to conduct the repairs yourself, it will still cost you money and even more of your time.
With real estate prices continuing to rise, it is easy for many renters to become anxious about buying a home. On average, owning a home results in more wealth accumulation in a lifetime than never owning a home. Of course, the decision to buy a home or not is not that straight forward. As mentioned above, there are many instances where renting will actually make more sense. With many Americans working remotely and moving to South Florida, we have seen an increase in the number of renters. In this scenario, renting makes complete sense. For starters, perhaps the remote working environment is only temporary? Even if it is a permanent remote working environment scenario, it still makes sense to rent for a period of time. This will allow you to learn the local real estate market and determine which area you would prefer to live in.
Do you have questions about the South Florida real estate market? We can help. Contact Live South Florida Realty, Inc. today & let our local experts guide you in the decision making process.