If you’re thinking of making the transition from renter to owner, there are several important questions you need to ask yourself. How long of a mortgage should I get? What’s my job security like? How much money should I put down?
We’ve asked Jason Hull, CFP, the CTO of the online comprehensive financial planning service myFinancialAnswers to tell us when renters should become owners. If the points below speak to your own personal situation, it may be time to switch from renting to owning.
1. When you want to keep/put your kids in a strong school district and there are no viable rental options in that district.
A lot of rentals happen in downtown areas, and sometimes, those areas have lower rated schools. The area where we live in downtown Fort Worth is an area like that – schools in surrounding districts get higher ratings, and a lot of parents, if given the choice, would choose to live in a suburb with higher rated schools where rentals aren’t as plentiful.
2. You’re going to stay in the same location for at least 5 to 7 years
Because of Realtors’ commissions, closing costs, and, where applicable, loan origination fees, there’s often a pretty high breakeven point in recouping the expenses you pay for moving.
3. A better job in a different geographical location isn’t going to come up soon.
4. You can get a 15-year mortgage.
Ideally, you want to pay off the mortgage as quickly as possible, or, at least, get to the point where most of your mortgage payment isn’t in interest as quickly as possible.
5. You can put at least 20% down on your down payment, and preferably, you pay for the house in cash.
Yes, I understand that mathematics favors leverage and mortgaging as much as possible, but that doesn’t account for risk. If you have a family, you cannot be risky in deciding about housing.
6. Your total payments, PITI AND 1% of the value of the house per year, are less than 25% of your take-home pay.
Many homeowners forget about the regular maintenance costs that come with a house. They forget that the drywall cracks and that the roof will eventually need replacing. Instead of putting money away each year to pay for those long-term maintenance costs, they look at the mortgage payment as the only expense, which could leave
them in a hole when the roof does need replacing. 1% of the value of the house is a good rule of thumb for home maintenance costs.
Jason Hull, CFP, is the CTO of the online comprehensive financial planning service myFinancialAnswers.