Purchasing a home will inevitably be the biggest financial discussion of your life. The decision as to whether it is the right time to purchase a home depends on a number of factors, not just your finances.
Although your finances are important, other things you should consider before putting in an offer are your age, the current real estate and mortgage market and of course where you see yourself in the future.
So should you rent or purchase a home? Find out by asking yourself the following questions.
What are your future plans?
In the short term, renting is always less expensive. There are substantially less costs involved in renting, and normally just comprise of first and last month rent, a monthly water and electric bill and maybe the actual expense to move.
If you decide to purchase a home there are a number of costs involved, in addition to the monthly bills. Even once you are able to save the deposit, you will need to save an additional amount to pay the costs of purchasing.
Other costs include land transfer taxes, lawyers fees and potentially closing costs. Keep in mind, once you own your new home, your monthly bills will likely be more than if you were renting. This is especially true if you are moving from an apartment to a house.
It is best to calculate how long you plan to stay local to where you are. If you plan to stay indefinitely, then purchasing is your best decision. If you plan to stay for only a few years, then renting may be substantially less expensive.
There are scenarios where this may not be the case. If you are purchasing in a large metropolitan city or in the surrounding areas of one, there is a chance that the market could go up substantially in a couple years time, in which case you would have made money, but knows for sure what the market is going to do, so it is best to take the risk you feel most comfortable with.
How old are you?
If you are still in your twenties, you may end up relocating due to relationships or career opportunities. In which case renting would give you more flexibility than purchasing.
If you are in your thirties and are in a longer term relationship and are more established in your career, then purchasing may be a better option.
Many people spend their twenties saving so they can purchase in their thirties. However, this doesn’t have to be the case! The sooner you know where you want to live and who you want to be with, the sooner you should purchase.
There is a lot to consider at any age. Perhaps you’ve been patiently saving for your first home, and you’re older, but now you’re ready– then do it!
Maybe you’re looking to downsize or nearing retirement age and considering whether renting or buying is a better option. If so, there are a lot of other things to consider such as how much upkeep you want to be responsible for, how much flexibility you want to be able to move, as well as your finances.
How much does it really cost?
There are a number of fees that come with home ownership. It is best to run the numbers yourself so you have a better idea of how much it would cost to purchase vs rent.
Fees to purchase include saving the deposit, which is usually about 20% of the purchase price of the home for a conventional loan, but often less for first time home buyers depending on the loan program you qualify for. In addition to the down payment, there are often lawyer fees, land transfer fees, insurance, other closing costs, and moving expenses.
You will have to furnish the new home, you may need to purchase window treatments and do any needed renovations or repairs.
Don’t forget after that you have carrying costs. With renting you normally just pay your landlord once a month and then possibly a utility bill or renter’s insurance. When you own a home you will have to pay your mortgage, property taxes, maintenance, potential condo or homeowner association fees, as well as your monthly utility bills. You will also need to put some money away on a monthly basis to save for future repairs or maintenance of the home including replacing the roof or furnace.
Depending on how much you have saved to put down on the property and how much rent is in the city, you would have to run the numbers yourself to see what makes sense. Make sure you consider the amount of buying vs renting in the long run and the costs associated with each.
Are you in high interest debt?
If you have car loans, credit card debt or any other debt that has a high interest rate, it may make more financial sense to pay that off and then save up for the deposit for a home.
Taking out a mortgage when you are already in a substantial amount of debt, may be putting yourself in a worst financial situation, and you may be required to have a higher interest loan, or pay more upfront fees to qualify than you would if you cleaned up your credit first.
The likelihood of getting a mortgage or a mortgage with a good interest rate, will be lower if you already have a number of loans.
Take care of the debt you are in, and then sign off on the big mortgage loan.
Do you have the deposit saved?
If you do not have between 10% and 20% of the purchase price of the home saved then your monthly payments may be substantially more. Putting down as much as you can will keep your carrying costs lower, however, this is not always recommended depending on the loan program you qualify for, such as a first time home-buyer loan.
In some instances, if you do not have at least 20% saved, you will likely have to insure your mortgage which can up your monthly payments. It is best to meet with a mortgage broker to see what you need to save and what you qualify to borrow when you’re making the decision to rent or buy so that you have all the information you need to make an informed decision.
Assess your current savings, see how long it will take you to save a deposit, and start looking once you have it saved.
Run the numbers and know what makes the most sense for you.
Is your job stable?
How many years have you been in your job? Do you plan to stay in the field you are in? These are the types of questions you should be asking yourself when thinking about purchasing.
If you are happy in your line of work, you plan to stay in the city you are in and you are confident that your job is stable, then purchasing is likely your best bet.
But if you are in a line of work that involves contract, seasonal work or if you have just started your job or would consider moving somewhere else, then you should hold off on purchasing until you are more settled for the longer term.
Conclusion
It may seem like the obvious choice to build equity and bank in on future appreciation, but purchasing may not always be your best option.
If you are just starting out in your career, have other debts, have not saved a sufficient deposit, are not established in your line of work or might consider moving, then you might want to consider renting until you are in a more stable and confident position about your future.
