Thinking about making the move from renter to homeowner? You’re not alone. First-time homebuyer rates have been strong in recent years, and the National Association of Realtors® (NAR) even found that a “typical mortgage payment” was cheaper than the median rent in June. Of course, mortgage rates aren’t all you’ll factor into your decision to rent or buy. Here are 5 tips to help you choose.
1. Compare your costs
For a first look at how buying will compare to renting, try a Rent vs. Buy Calculator. It will give you an idea of how much each option may cost you over time. Rental expenses like rent increases and renter’s insurance will be measured up against homeowning expenses like property taxes and maintenance.
2. Estimate what you’ll need for maintenance
Speaking of maintenance, sources suggest budgeting anywhere from 1–4% of a home’s value for that annually. Maintenance may also represent a significant trade-off if you buy compared to renting. Every time an appliance breaks or your grass needs to be mowed, the added cost or inconvenience will be yours.
One option that may help you manage this risk is purchasing a home warranty. These plans can cover repairs for everything from heating and cooling systems to appliances and pool equipment. Based on estimates from the National Home Service Contract Association (NHSCA), you’ll want to budget about $400–$550 per year for one, plus $35–$100 for each house call. As an added bonus, you may be able to convince a home seller to purchase a year-long plan for you. It’s not unusual for sellers to include them as part of a home’s sale.
3. Weigh the pros
There are definitely some perks of owning a home, like how it may pay you back. That’s because homes can build equity, which is the difference between what you owe on a house and its appraised value. As an example, if a home is worth $250,000 and you owe $200,000, you would have $50,000 in equity. Some homeowners cash this out to cover things like home improvements or debts, or to have some savings set aside. A second benefit is that your home may rise in value on its own. And a third potential benefit is that you will be eligible for certain tax deductions related to your home.
4. Weigh the cons
Homeownership also comes with risks. Equity, for example, isn’t guaranteed, because home values can go down. Property taxes can also go up. And, there are costs associated with getting a mortgage. These can include a down payment, inspection fees, homeowners insurance, and more.
5. Get prequalified
After you’ve evaluated your options, think about getting prequalified for a mortgage. This will give you an idea of what homes you can afford and whether they’ll line up with your wants and needs. To get prequalified in minutes, click here.
In the final analysis, homeownership makes sense for millions of people each year but there are costs and benefits at play. If you’re ready to take the next step, Mr. Cooper is here to help. Check out our guide to homebuying and talk to one of our loan officers today.