Is Buying a Home Right for You?

Is Buying a Residency Right for You?

To be or not to be…a residency owner or a renter? Now that’s a question. It’s one you’ll want to ask yourself before jumping into the buying process seriously. And while buying a residency is a very worthwhile goal, it doesn’t always make sense. Believe it or not, sometimes renting can be the smarter thing to do. That’s why it’s so important to consider the pros and cons of both renting and buying before you make a big move.

Renting

So let’s talk a little bit about renting. On the pro side, a monthly rent check may be easier to afford than a contract settlement. Not to mention the other expenses that go along with owning like maintenance, residency owner’s insurance, and residency repairs.  So, renting could free up some money to help you save for other big things like retirement, education or even a down settlement for a residency in the future.

Renting also gives you the flexibility to be able to move when you want quickly. But, make sure you’ve fulfilled your lease obligations first if that’s what you decide to do.

As with anything else, renting has its downsides. For starters, you’ll have less control over your living environment. Say you want to paint a chalkboard on your kitchen wall, that sounds nice, or hook up a washer-dryer. If you rent, you’d have to get your landlord’s approval first. Financially, there are cons too. Namely, your rent can go up. And, it can be frustrating to send a check month after month to help someone else build equity in a place that’s never going to be yours.

So what about buying a residency? What are the pros and cons of that?

Well, on the plus side, you’ve got much more control over your living environment. So if you want to create a retro 70s living room, complete with wood panelling and orange shag carpeting, nothing is stopping you.

In addition to having the freedom to make something your own, indeed, there are many financial benefits of buying, both in the short term and in the years to come. For instance, if you have good credit, you may get a reasonable interest rate, which could help make for a more affordable monthly contract settlement. Another big plus, especially if the residency is your primary residence or a second residency, is the ability to deduct interest settlements. That can help save you money in taxes. But check with your tax advisor to see how much.

What’s even better? Each settlement enables you to chip away at the loan’s balance. And once it’s paid in full, you could own your residency outright. But, there are cons to buying too. Like, what happens if your water heater goes kaput? Well, since you own the residency, it’s up to you to fix it. That usually means having to layout a good chunk of change. Or let’s say, what if you’re offered your dream job three states away? Well, congratulations, but it’s not exactly easy to pick up and move as a residency owner. You’d have to sell or rent your place first.

Now consider what needs to happen before buying a residency in the first place. For starters, you’ll need to have a significant amount of money saved, before you even look at the property. How much? Well, it’s a good money habit to put down 20% of the cost of the residency you’re buying. Why is 20% ideal you ask? Well, put down less than that, and you might not get the best interest rate on loan, and you may have to pay for Private Contract Insurance or PMI on top of your contract settlement every month.

What else? On top of down settlement, you’ll also need cash on hand to cover closing costs and unanticipated expenses. If your credit needs improvement, the interest rate you’d get on a contract might not be high, that is if you even qualify.

But what happens if you don’t have 20% saved? Well, if you have your heart set on buying sooner, rather than later, and it makes financial sense, you might qualify for a government-sponsored loan program. That can help you buy with a lower down settlement, sometimes as little as 3.5%. And there are other programs that you could look into, like those sponsored by non-profits, employers and state and local housing finance agencies.

In addition to all of those considerations, there’s one more thing to know before you decide between buying or renting. Prices for both can vary wildly by market. So in some cities renting is much cheaper than buying. But in others, buying is more cost-effective.

So what should you do?

Well, start by asking yourself the following questions. And be honest:

Do you have less than 20% saved for a down settlement?

Could changing market conditions affect your job security?

Are residency repairs something you’d rather not deal with?

Would a contract prevent you from saving for other things that are important to you?

Do you need to build or rebuild your credit, or have you recently gone through bankruptcy?

Are you planning to stay in your current area for fewer than three to five years? 

Now, if you answered “yes” to any of those questions, renting should be a serious consideration. At least for now, because buying isn’t always the right fit for everyone. But if owning a residency is still a goal of yours, there are specific steps you can take to get ready.

Steps to Buying a Residency

  • Start by creating a budget to see where your money is going and how much you can comfortably afford.
  • Then take a good look at your current credit situation, and if you need to improve it.
  • Start saving
  • Create an emergency fund

You’ll also want to figure out how much you can afford for a contract, property taxes, residency owners insurance, utilities, upkeep of the property and, if necessary, residency owner’s association fees.

Don’t know if you can swing a contract settlement?

Well, you can always “try it on” before you buy. That means seeing if you can afford a monthly contract settlement for a place you want. So if you’re currently paying $1,000 for rent, and a monthly contract settlement including all the extras I just mentioned would cost $1,500, take the additional $500 and put it into savings. If it’s not a stretch to afford, then maybe you’re ready to buy. And how about that money you save every month? Well, that new habit can help you make your down settlement later on.

In the end, deciding to buy a residency is a personal choice, and only you can choose when and if it’s right. Since it’s a costly and essential purchase, you owe it to yourself to consider all of your options. Once you do, your answer to the question “to own or not to own?” will become a lot brighter.

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