Problem is, it's not always easy to determine when it's time to transition from renting to owning a home. And when the residential real estate market is struggling, as it is now in most major metropolitan areas in the country, it's an even tougher decision to make.
But there are several factors renters should consider to help make this decision a bit easier.
Do You Make Enough Money?
Renters should look closely, and honestly, at their income and debt levels. Those blessed with a high income and a low amount of debt, can at least consider taking on the additional financial burden of owning a house. Renters struggling with large amounts of debt and an income that's either too low or not stable enough should continue renting until they can improve their financial situation.
What's Your Credit Score?
Few numbers are as important as a credit score for consumers hoping to qualify for a mortgage loan. The score is a numerical figure that acts as a sort of history - in one, easy to understand "score" - of how consistently loan applicants have paid their bills and dealt with their revolving debt. This score is kept by three national credit bureaus, Equifax, TransUnion and Experian. Mortgage lenders rely on it to determine if borrowers are likely to pay their mortgage bills on time or if they're more likely to miss payments and default on their loans.
Lenders consider a credit score of 700 or higher an excellent one. Such a score can help borrowers qualify for the lowest mortgage interest rates and the strongest loan programs.
Consumers with low credit scores, though, should wait before buying a home. Borrowers don't get low credit scores without having a history of missing payments. It's likely that these borrowers will also struggle to make their mortgage payments, at least until they get more financially responsible. Borrowers with low credit scores may not even qualify, in these days of tougher credit regulations, for a loan. And even if they do, they will have to pay higher interest rates.
Can You Come Up with a Down Payment?
During the big housing boom, which lasted from about 2001 through 2006, mortgage lenders allowed borrowers to put down as little as 5 percent, 3 percent or, astonishingly, zero percent, of a home's purchase price. Today, though, lenders are far more cautious. They are now asking many borrowers to come up with 20 percent of a home's purchase price. Those who can't are unable to qualify for a mortgage loan with them.
There is hope, though, for borrowers who are struggling to come up with a down payment. The Department of Housing and Urban Development's FHA loans require a down payment of as little as 3 percent. Borrowers should make sure to talk with their mortgage loan officers about the viability of FHA loans.
Are You Ready to Settle Down?
There's one more question that potential homeowners need to ask: Are they ready to make one neighborhood their home for several years? Buying a home is a real commitment. And the longer owners stay in their homes, the more likely they are to make a solid profit on them when it is time to sell. Those not willing to make a long-term commitment to a home and neighborhood might want to continue renting.
Making the decision to buy a first home is always a big one, and often a scary one, too. But by asking the right questions, potential homeowners can make their decision with confidence.
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