Are you renting when you should be owning?

- The decision to quit renting and become a homeowner often marks the transition from carefree youth to responsible adulthood. It can also mark a step from month-to-month finances toward the beginnings of financial independence.

For most of us, buying a home is the largest single purchase of our lives. It’s a big step. So it’s no surprise that some people have a tough time bringing themselves to make the decision.

And that’s especially the case among millennials who are slow to commit as well as those without a family tradition of home ownership.

So, to help out our viewers who may be sitting on the barbed wire fence of renting, real estate expert John Adams has developed a quick test you can take to see if you probably should give ownership a serious look:

1.  Is it likely that you will still be living in this metro area four or five years from today?

Residential real estate tends to be a slow and steady investment, one that tends to increase in value over time. But a house usually has high transaction costs, meaning that the process of buying or selling presents a major expense by itself.

Remember that one of principal benefits of renting is flexibility. You can move whenever you want.

So, if you think you might be moving in two or three years, it’s probably a smart move to continue renting, at least until your plans become more concrete.  

2.  Do you have a steady job, or some other regular and stable source of income?

Unless you are made of money (not likely), you will need to qualify for a home loan to help you make a home purchase.  

And the most important factor in your loan approval is a proven and steady regular source of income. Like a job. Lenders love a plain old regular job with a weekly paycheck and a pay stub to prove it.

3.  If you have had credit problems in the past, such as a bankruptcy or a foreclosure, has it been at least 12 months since that event occurred?

Home lenders have loosened their approval guidelines in recent years because the recession devastated so many Americans through no fault of their own.  Even so, past financial issues will draw increased scrutiny, so be prepared to explain the circumstances and show progress since that time.

4.  Do you have a credit score of 580 or higher?

Lenders developed credit scoring as a way to take personal bias and prejudice out of the loan approval process. The idea is that your credit score is a reflection of how you have handled your financial obligations in the past seven years, with greater weight given to more recent history.

Free online sources such as BankRate.com and CreditKarma.com will provide you with free copies of your credit report, and free versions of your three digit credit score.

FHA recently lowered its minimum credit score from 640 to 580, and that’s for a 30 year loan with only 3 ½ % down payment.   With a downpayment of just 10%, you’ll only need a score of 500!

If you answered yes to all four questions, there is a strong likelihood that you will be able to buy a home.  

Now the only question is this: Do you WANT to become a homeowner. And that is a decision only YOU can make!

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