Purchase a Home or Continue Renting?

14 Mar Purchase a Home or Continue Renting?

Owning a home is a common aspiration for renters. There are many advantages, such as having more control over your living space, building equity, and potentially benefiting from rising home values. However, it is also a significant financial commitment that may not be suitable for everyone.

Consider these 5 key questions when deciding whether to rent or buy a home. 

1. Do you plan on staying in your Niceville or Destin home for a few years, if not more?

When you purchase a home, you will encounter numerous one-time expenses such as broker fees, mortgage origination fees, and title insurance. The longer you own the property, the more time you have to distribute those costs, and the greater the potential for your home to increase in value.

If you plan on staying in a home for less than three years, it may not be financially wise to purchase it. Staying for less than two years can also have tax implications. You typically won’t be eligible for a capital gains tax exclusion, which means you’ll owe taxes on the full amount of any increase in your home’s value.

2. Do you have the necessary financial resources to make the purchase?

Purchasing a property that is beyond your financial capacity can increase your vulnerability to financial emergencies and hinder your ability to save for retirement or other important goals. Additionally, an insufficient down payment or a poor credit score could put you at a disadvantage when competing for a home in today’s competitive real estate market.

To make sound financial decisions, you should consider the following relevant aspects of your finances:

• If your income is not stable or sufficient, it may not be the right time.
• It’s typical to pay at least 20% down to avoid private mortgage insurance which protects your lender if you’re unable to make your mortgage payments.
• Having a solid credit score is crucial to qualify for a favorable mortgage rate or even get approved for a loan.
• Your total monthly debt payments should not exceed 36% of your pretax income. If you have other debts, it may reduce the amount of money available for mortgage payments.

3. Does renting or buying a property provide better value in your area?

You may think buying a home is a better value, but that may not be the case if rent prices are low compared to home prices in your area.

When making a comparison between renting and buying a property in Niceville or Destin Florida, it is important to ensure that you are comparing similar properties in Northwest Florida. For instance, it would not be appropriate to compare the cost of renting a studio apartment in the Destin with buying a cottage in the countryside. Once you have identified similar properties in the same location, you can then compare the costs of renting and buying.

Are you in the process of calculating the figures?

Some people make decisions based on intuition, while others prefer a more detailed analysis. If you fall into the latter camp, here are some important points to consider while weighing the pros and cons of renting versus buying a home: 

When considering a home purchase, remember to factor in the full cost of ownership. This includes mortgage payments, property taxes, insurance, routine maintenance, and occasional larger upgrades. One rule of thumb is to estimate maintenance costs at 0.5% of the home’s value annually. 

Make sure you double-check whether it makes sense for you to take a mortgage interest deduction. It’s only worth it if your total itemized deductions exceed the standard deduction, which is $13,850 for individuals and $27,700 for married couples filing jointly in 2023. 

Consider investing in a diversified portfolio instead of buying a home to build equity. Renting may be cheaper and allow you to save money to invest.

4. If the value of your home doesn’t appreciate, do you still want to go ahead with the purchase?

It’s important to keep in mind that while home prices have generally increased over the long term, there is no guarantee that they will do so in any given time period or location. Additionally, what ultimately matters to you is the value of your own property, which can be impacted by a variety of factors such as the local economy and the upkeep of neighboring properties.

Consider this: Imagine a scenario where the value of your home remains stagnant for 10 years or increases less than the inflation rate. If you decide to purchase a home, you must be prepared to accept the fact that it may not turn out to be a profitable investment.

5. Are you torn between renting and buying? What does your heart really want?

Purchasing a home is not just a matter of financial transaction. It also comes with added responsibility, and for many individuals, it brings a sense of pride and satisfaction. It’s crucial to make a sound decision that you will be content with in the long run.

Consider the level of commitment that comes with owning a home. If the thought of being responsible for fixing a flooded basement or a leaky roof scares you, you may not be ready. However, if you are ready to put down permanent roots, you may be ready to take the next step.

Need Help? Give Sound Choice Real Estate a call, we’re here to help simplify things for you!

If you’d like some help from our team of professionals at Sound Choice Real Estate please Click Here or give us a call at 850-389-8533 to Contact Us.

Sound Choice offers full-service property management in Niceville, Destin, Crestview, Fort Walton Beach and the surrounding areas. We are dedicated to providing a maximum return on your investment and eliminating hassle and stress.