News about record-breaking mortgage rates has become the norm lately. And if you’re following that news, you know that the average 30-year fixed rate mortgage rate just dropped again to 3.75 percent. With all of these reminders about how inexpensive it can be to finance a new home these days, it wouldn’t be out of the ordinary to think of buying a house of your own.
However, if you are currently renting, entertaining the possibility of becoming a homeowner also comes with a lot of questions, mainly, how feasible would it be to buy right now? The current mortgage rates tell one important side of the story. Read on the get the rest.
Is it cheaper to buy or rent?
The answer to this question is not cut and dry. While buying allows you to build equity and is usually seen as a good kind of debt, there are other additional costs that you will have to pay that won’t go towards your investment. When you begin to pay mortgage, for example, as much as 80 percent of your first payments actually cover interest, not your home. And you will quickly acquire other expenses that most renters don’t have, such as property tax and home owner’s insurance. So even if you find a mortgage that roughly equals what you are currently paying in rent, you could still double your household expenses by purchasing a home.
However, you may face a catch-22 when making your decision because rental prices have increased as mortgage rates have plummeted. Primarily because the housing crash has scared so many would-be homeowners away from the market in the past several years, vacant rental properties are becoming a scarcity and prices are steadily increasing. So if you’re debating whether to buy or rent, it pays to grab a mortgage calculator and compare the numbers in both scenarios.
When should you buy?
Taking all of these factors into account, when is the right time to buy? Owning a home one day can lead to financial security and provide a place to accommodate a growing family. And, like these big life changes, when you are finally ready to buy a home, timing is everything. In addition to paying attention to the market, you will also want to make sure that you have a robust savings account because most experts recommend making a down payment of around 20 percent. Also, you will want to find the best mortgage rates on the market, which means that your credit score should be in tip-top shape.
The current state of housing in the U.S. is challenging every one’s best advice about how consumers should act. This is why it is so important to consider your personal financial situation above everything else when you make the decision to rent or buy. Once you sign on the dotted line, you could be on the path to financial security, but only if you weigh your options first.