Realtors talk a lot about why you should buy instead of rent, and this is for good reason. This is what we do for a living and so we want you to buy homes from us :-). Plus, it’s obviously an important part of building wealth. The average homeowners net worth is 41 times the average renters.
Still, there is times it may be better to rent. I tell prospective clients to rent all the time. Here is some situations you may want to consider renting rather then buying.
When you can’t commit to the purchase long term.
So maybe you know your going to stay in the area, but can not quite afford what you want to buy (and need to wait for a raise or save more money to put down).
Or your not sure if you will be living in the area long term.
Or your going through a transition in your personal life.
Buying a home usually does not make financial sense unless you can count on being in that home for 4 or 5 years or longer. The closing costs to turn around and sell a home, can often times eat up any appreciation over the course of the first year or two of homeownership. Homeownership really begins to create equity from longer term appreciation, and paying down your home loan.
The one exception to this would be if you are buying a fixer, and plan to fix it up. If you get a bargain on a home and plan to do updates or repairs, the sweat equity can make for a good short term investment as well. Or the market could be red hot, and appreciation might jump the value quickly for you, but you can’t count on timing the market and knowing what the market will do.
When you are in a rush and need to find a new place to move quickly.
There is many situations people find themselves in where they need to move within 30-60 days. Perhaps it’s a job relocation, a sudden change in your personal life, or you sold your home first before you found a place to buy. If you know the market and have a pro-active agent helping you, maybe you get lucky and find a great home quickly. Especially when there is a lot of inventory. But in markets like this one, where inventory is low, it is best to give yourself time to find the right home. If you can find a rental month-to-month or on a 6 month lease, you can then be in a position to pull the trigger when the right homes along, and not make an emotionally pressured decision that you may regret later.
Even if you enter into a 1 year lease agreement, the rental market in our area (especially Bellingham) is strong. So often times if you find a home to buy 4 or 5 months into the lease, you can negotiate terms to get out of the lease within a couple of months without substantial costs to you. Yes, it’s a pain to move twice. But this is a very important decision your making, so don’t let yourself feel rushed.
If your credit is low and your having trouble qualifying for a conventional loan.
I hear from some buyers that have poor credit and are trying to find a way to get into homeownership. They are enticed by low priced homes, and despite being turned down by a lender, inquire about lease/option and owner financing terms and other creative ways to get into home ownership. In these situations, it makes the most sense spend less energy trying to find the creative terms home deal, and instead focus on improving your credit and financials first. Improving your credit and getting qualified for a conventional loan will allow you to have more options to consider to buy. And typically by improving your credit first (paying down other debt, etc), your better positioned to qualify for a higher price point as well with a lower interest rate. There is very few homes that offer lease/options or owner financing.
Don’t limit your options when making such a huge investment when you may only be a few months away from improving your credit score and having ALL homes in your price range available to you. Lease/option terms usually favor the seller/owner.
So when is the best to buy a home?
It’s when your financially, and personally ready to commit to homeownership long term. When you have good credit, a solid job, and can buy in an area you know you want to stay in. You then can get pre-approved and actively search. You then need to learn about the market, weigh the trade-offs of each home, and be active and ready to buy. This is the formula to a successful home purchase. It’s not about timing the market. It’s about making sure the timing is right for you.
For first time home buyers, one reason that should not hold you back is a lack of a large down payment. There is a few excellent no down and low down loan programs with excellent interest rates for the buyer with good income and credit and lack of down. Even with the prices going up in Whatcom County..Some programs like the Washington state bond program, the tax incentives make owning cheaper then rent. Rents have been rising and will continue to rise. So I’m obviously an advocate for homeownership, but it’s just important to consider all of the above first.
