Finurah will be bringing you a series of articles discussing the difficult choices associated with purchasing a home. Homeownership is one of the main ways to build generational wealth and to help close the racial wealth gap. But it takes more than a mortgage to buy a home, and Finurah will help you prepare for future homeownership.
A majority of your 30-something friends are buying homes. Your family keeps pressuring you to become a homeowner. While it might be tempting, you just don’t feel ready to swap paying rent for having a mortgage debt.
Here are five things to say when you are pressured to buy a home Instead of renting.
1. I’m Not Ready to Settle Down In An Area
Purchasing property indicates that a homebuyer has long-term goals of staying in an area. However, if someone is not interested in keeping a residence in an area for long, purchasing a home is not a good idea. Although homes will build equity, it takes time.
Owning property allows homeowners several advantages, such as the opportunity to build equity in their home. U.S. homeowners have seen their equity increase by at least 29 percent since 2020, according to Home Equity Insight. However, homeownership also comes with a number of challenges, such as repairs and maintenance, that make owning a home less appealing for some people.
In the first year of purchasing a home, a buyer has spent money on a down payment and other costs associated with the buying process. They have also paid for moving expenses before settling into their new home. If a person is not looking to stay in an area for at least five years, purchasing a home is not feasible.
2. It’s Going to Cost Me Too Much
If you have a high debt-to-income ratio, now’s not the time to buy a home. When mortgage lenders analyze potential homebuyers, they are looking for more than a decent credit score. They are also looking at a buyer’s debt, income, and ability to afford a mortgage. A monthly mortgage should not be more than 28 to 31 percent of someone’s gross income with either a conventional or FHA loan. In addition, debt to income will also determine how much someone is able to borrow.
Therefore, if an interested homebuyer has high student loan debt, credit cards, and car payments, it is beneficial to pay this debt down before beginning the homebuying process.
3. I Don’t Have An Emergency Fund
Homeownership comes with a ton of responsibility. In addition to the monthly mortgage, there are also general maintenance and repairs to be made. And, as a homeowner, it is always best to expect the unexpected, such as a loss of income.
For emergency repairs, homeowners should have at least $5,000 to $15,000 set aside for unknown expenses. If a job is lost, a homeowner should have at least three to six months of mortgage payments in an emergency fund.
If someone does not have the ability to save this amount of money, it makes more sense to continue renting.
4. Renting Has Fewer Upfront Costs
When someone decides to rent, they have to pay security as well as the first month’s rent. The national average cost of rent on a studio apartment is at least $1,690 per month, Rent.com reports. That means to move into a new apartment a renter will spend an estimated $4,000. However, if a renter were to decide to own a home, they would need to raise enough money for a down payment, inspection and appraisal fees, attorney fees, insurance, taxes and closing costs before they are handed a set of keys.
One of the most significant expenses associated with purchasing a home is the down payment. For FHA loans, a purchaser will need at least 3.5 percent of the total cost of the loan, while conventional loans will call for three to 20 percent. Therefore, if a homebuyer purchases a home for $300,000 using an FHA loan, the down payment will be a minimum of $10,500.
5. With Renting, I’m Not Responsible For Maintenance and Repairs
Landlords, not renters, are responsible for the maintenance and repairs of a property. As homeowners, expect to pay at least $200 on appliance repairs annually, according to Home Advisor. Expect to spend an average of $172 on appliance repair costs, with a typical range of $105 and $241, according to Home Advisor; this includes parts. The professional service cost will be between $50 and $150 per hour. This range consists of the most common appliance problems.
Bigger repairs such as a roof or painting are expenses that require an emergency fund. A renter, however, only needs to pick up the phone and call their landlord or super to make a repair.