Buying A Home Versus Renting A Home

At first glance, home ownership seems like a no-brainer. Rates are low right now and there is an abundance of attractively priced homes. Go for it!
But wait a minute — look before you jump. The recent recession has taught us that homeownership is not for everybody. Low rates and cool houses can't be the only deciding factors. Before you jump into buying, consider this:
First, figure out how much house you can afford. There are many ways you can accurately estimate this. One that I like suggests that your house payment — including taxes, insurance and utilities — should not exceed 40 percent of your monthly gross income.
For example, if you make $4,000 a month before taxes, you should not spend more than $1,600 a month on your mortgage and utilities.
Second, you will need more than a down payment in reserve. It is very important to have extra cash set aside for sudden financial setbacks (like losing your income). Many families learned this the hard way when they had to let go of their home because their financial pipeline dried up.
Third, factor the cost of maintenance and repairs into your monthly budget, especially if you are drawn to a unique fixer-upper.
Fourth, contact a mortgage planner to see if you qualify for a loan.
Roy Clennan with Freedom Financial Services says that while many people qualify for loans these days, the biggest hurdle is their credit score. Clennan suggests that you work with a lender and get the loan credit approved before you start the homebuying process.

Buying a home is certainly a big step and a big financial commitment! Although it is easy to get lost in the excitement of it all, it is not a step to be taken lightly and without a lot of thought. Owning a home is a huge financial commitment, and besides paying the mortgage, there are many other expenses that will come up. I mention the repairs and maintenance budget above.

When you rent your home, you can call the owner when something breaks down or does not work properly. When you are the owner, then all of these expenses come out of your pocket. You have to be certain that you want the responsibility and have the funds to pay for all of the little (and big) things that will arise during the time you own your home. So do your homework before you purchase!

Finally, have a real estate agent take you on a tour of homes within your price range. Don't bother looking at a dream house that might send you into financial turmoil. It's not worth it.


Denisa Tova MBA, CFP, CFDP(TM), ChFC, CLU provides divorce financial expertise to divorcing individuals. She is a Certified Financial Planner(TM) practitioner and Certified Divorce Financial Analyst. You can find more information about Denisa Tova at: http://www.denisatova.com
Reprinted with permission of The Colorado Springs Gazette