When it comes to finding a place to live, the main concern of most people is if it’s sensible to buy a home or not. Often people are confused whether they should go for the ownership or simply rent a house. Well, if you too are unable to determine the right choice, analyzing a few important factors can help you understand the circumstances when renting seems to be an ideal option.
The very first thing that you need to consider is your credit report. In case, the FICO score is less than 620, getting a good interest rate for a loan can be difficult. Now, if you wish to purchase with bad credit, fixing it before applying is highly essential. Remember, it would take only four late payments to make you ineligible for the acquisition of a loan.
Next, we have the issue of debt ratios. Front-end and back-end are the two ratios considered by lenders. Basically, when the sum of your mortgage payment, taxes and insurance is divided by your monthly salary, front-end is obtained. The back-end calls for the addition of your monthly debt payments with PITI payment before dividing that whole figure by your salary. Now, a 50% debt ratio is regarded as a high ratio which means, you are less likely to qualify for the loan.
The third, very important issue that you need to consider is your monthly earnings and employment stability. Job security is one of the key factors that determine whether you should opt for renting or not. Here, it’s important to note that unemployment compensation can hardly play a role in covering mortgage payments. Besides, if you have job with the risk of getting transferred to another place within the next two to three years, you would possibly have to sell the property. This means, your property needs to appreciate about 10% at minimum in order to cover the selling cost; or else, you would experience a loss on sale.
Here’s an example that could help you understand the situation in a much better manner. In case, you have a mortgage payment which is triple the amount required to be paid for rent; renting can prove to be a wise move. Suppose, if it would cost you $3,000 a month to rent what would cost you $9,000 per month to buy; paying an annual amount of $72,000 more to get the ownership makes no sense.
