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Should you Buy or Rent Your Home?

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Home ownership is not for everyone. That is a well-kept secret in the glamorous world of real estate. Credit ratings, debt and job stability are just a few factors that should be weighed when considering buying a home. How do you know when to buy a home or stick to renting? These tips will help you make a well-informed decision:

Know Your Credit Score

You have probably heard this a million times. Your credit score will have a huge impact on your ability to purchase a home. To be eligible for decent interest rates for a home, your FICO score needs to be at least a 620. Homeowners with scores below this threshold are significantly more susceptible to predatory lenders with high interest rates. The cost of loans from these lenders is so high it will be difficult to make payments while maintaining a decent lifestyle.

You can order one free credit report each year directly through a credit bureau.
Once you know your credit score, be sure to address any negative items prior to shopping for a home loan.
• Keep in mind that just a few late payments can disqualify you from getting a home loan.
You can order your credit report free online.

Get Out of Debt

Excessive debt is another factor that can disqualify you from getting a loan. There are two major ratios of debt that are considered by potential lenders: front- and back-end debt. To determine how much front-end debt you have, add your taxes, insurance, and mortgage payment together and then divide this number by one twelfth of your salary. Back-end debt includes your PITI payment, the total monthly payment that you make on a house to include interest, taxes and insurance, plus other debt payments that are made monthly. That number is divided by your monthly salary is your monthly back-end debt. If either of these numbers is above 50%, you have what is considered to be a high debt ratio. This will disqualify you from getting loans from reputable lenders.

Weigh Your Job Stability

Prior to buying a home, be sure to consider the level of job security that your profession offers. Jobs like retail, customer service and even real estate fluctuate greatly and are influenced by external factors. A retial manager with a strong credit rating and little debt can easily afford a home loan with a monthly payment of $2000. However, if the retail store was to close and the manager loses his job, he would likely lose his home to foreclosure. In short, before purchasing a home be sure to consider the probablility of layoffs within your company, the likelihood of getting fired and the time it would take you to find another job if either of these catastrophes were to occur.

Plan for the Future

If you are considering relocating within the next few years or anticipate a promotion that would require moving, home ownership may not be the best decision for you right now. Selling a home can be not only costly, but also time consuming. Be sure to consider these factors before purchasing a home.

Consider the Total Cost of Home Ownership

In addition to mortgage, insurance and taxes, maintenance costs are also part of home ownership. Every home, no matter how well-kept, will require maintenance at one point. Consider whether or not you would be able to handle these expenses when they arise. Home repair experts often suggest setting aside a fraction, at least 5%, of the price you paid for the home for future repairs and maintenance.

Know What You Can Afford

There are some instances where renting may be cheaper than buying a home. This will depend on several other factors including the cost of the home and the mortgage rate that you are able to get. As a general rule, if your mortgage would be three or more times what you would pay for rent, renting may be a better option.

Once all of these factors have been considered, you should be able to make an informed decision as to whether or not home ownership is the right choice for you right now.