To buy or rent? That is the question…

1. Do the math on renting vs. buying.

Don’t assume that you are throwing money away on renting without doing the math. Renting doesn’t necessarily mean throwing your money away. Don’t compare a rent payment equally to a mortgage payment without taking into account the cost of utilities, maintenance, taxes, etc.

In some areas, it will be cheaper to buy than to rent, and in others, cheaper to rent than to buy.

2. Have a back up plan in case your financial status changes.

Be careful not to be ‘house poor’. If you max out your mortgage just to become a new homeowner, you might want to hold off on putting in that offer.

Run through scenarios of how things will play out if you are unable to make the income you are making right now for 3 months, 6 months and 1 year. That way, at least if you do lose your job, you will already have a Plan B in place to cover your mortgage. If there are two incomes in the household, we suggest you budget your mortgage on one income so you have the other as a safety net.

Circumstances can change regularly so it’s best to be safe and make sure you’re covered.

3. Be realistic.

Owning a home is not just the mortgage. You have to consider the extra cost of utilities (it is far more expensive to heat an entire home versus an apartment for instance), maintenance (replacing the furnace, windows, etc), repairs (you may end up with a lemon of a house that requires electrical re-wiring for instance), housing taxes, and last of all, fees such as home inspection and realtor fees.

There are plenty more things to consider but those are the main costs above and beyond renting, so don’t just assume if your mortgage is lower than what it costs to currently rent, that you’re in a good spot.


4. Have a savings above and beyond your down payment.

Your entire net worth should not be placed in a single asset, be it all in one company on the stock market, all in a bank in a low interest savings account, or lastly, all in a physical asset – your house.

You should at least have savings and investments set aside from your down payment. I like the ratio of 50/50, meaning 50% invested and 50% as your down payment so that not all your eggs are in one basket.

5. Shoot for a home 2-3x your income.

This allows you to purchase in a comfortable financial range. Safest to stay at 2x but you can safely go up to 3. A home is a real investment and a physical asset that can be difficult to unload for cash if you fall on hard times, so you shouldn’t buy a home and put all your money into one without doing your homework first!

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