Its always been an accepted fact that it makes more sense to buy a home rather than rent if you have the money. But the last 24 months have turned those beliefs upside down and folks are finding an uncommon real estate market that is difficult to understand.
While unusually low interest rates and plunging home prices imply that buying a home is the best option, increasing numbers of people are choosing to rent or rent-to-buy instead. However, making the right choice can be difficult.
So, as a matter of practice, when is it right to buy, rent, or rent to own? I have found 5 principal components to the decision:
1. Credit Score. For those many individuals with some dings on their credit report, it will be very difficult to get a mortgage loan in today’s environment. However, you may be able to build equity in a home while improving your credit score through a rent-to-own situation. However, if you are fortunate to have a high credit score, now might be the ideal time to obtain a loan at interest rates that are lower than they have been in fifty years.
2. Cash Flow Needs. It is especially important in the present economic environment to make sure you maintain enough cash to satisfy your current cash needs, and many folks are finding it difficult to come up with the cash needed for a down payment to purchase a home. Monthly rents tend to run lower than a loan payment, and that allows many individuals to meet other monthly obligations without hurting their credit scores.
3. Employment Concerns. The other day, I read a quote by Forbes.com columnist Matt Woolsey, where he stated “Given the state of the job market right now, the anchor of full ownership is a heavy one.” I have witnessed this heavy anchor with many of my customers, who are concerned over losing their jobs. If you share this unease, the rent or rent-to-own strategy may be for you, as it will preserve your credit and avoid a foreclosure scenario if you are unable to make payments.
4. The Flee Factor. If you have moved to a new city or state recently, or plan to move to a new location, it isnt always a good idea to purchase a home immediately. Renting gives the gift of time to evaluate the surrounding areas in your new city or state without the danger of financial loss by needing to sell soon after you purchased in a declining market.
5. Market Unpredictability. Even in markets that appear to be recovering more quickly, like Denver, the verdict is mixed as to when the real estate housing market will truly come back. A lot of consumers feel more comfortable waiting the market out until the data clears by renting rather than buying.
Each option has their pros and cons, and the important thing to do is to learn all you can so that you can make the choice that is right for you. A knowledgeable real estate professional is key to making your decision. They may point out some new and unusual options that are available and that may be exactly right for your situation.
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