If you’re new to the housing market, it’s tempting to jump right into buying a home. Before you leap, there are a couple of things to consider determining whether buying or renting a home is best. Depending on your situation, an argument can be made for both, so let’s look at the most important three factors.

 

Credit Score

 

Unless you have the cash on hand to outright purchase your home, you’ll need to take a close look at your credit score. To secure a mortgage or bank loan, you’ll need at least a 620 credit score to get the best interest rates. If your score falls beneath 620, a bank may not give you a loan or may charge you a higher interest rate, meaning the home’s overall cost goes up over the lifetime of the loan.

 

Before you start looking at properties, pull your credit report. You are entitled to one free copy of your credit report every year (12 months) from each of the three leading credit reporting companies. Upon receiving your credit report, look for any errors. Dispute any errors you find and ask to have any old, closed accounts removed to improve your score. If you need to boost your score, set up a plan to pay off your debt at a faster pace, make sure you pay your bills on time, and recheck your credit score at least annually to make sure nothing unexpected appears.

 

Current Finances

 

There are a lot of loan options available on the market. To get the best rates and lowest PMI (Private Mortgage Insurance), you’ll want to have a minimum of ten percent to put down on your purchase. Take into consideration how much cash you have on hand for a down payment and any improvements a house might require to be livable. Will you need appliances or other large expenditures to make your new home move-in-ready? If so, make sure you have the cash on hand. Before purchasing a home, call the local utility providers for an average monthly cost for the property you are considering. Is the house in a neighborhood with a Homeowners Association? If so, what are the monthly fees?  All of these things are a part of the cost of purchasing a home. 

 

Job Status

 

Lastly, take a look at your income. If you don’t have job security or a regular income, the idea of committing to a long-term expenditure can be overwhelming. Most lenders will look at job history when you apply for a mortgage. If you have less than two years at an employer, you’ll be hard-pressed to find a lender willing to take the risk of lending you money.

 

After evaluating these three main areas, you’ll be better prepared to determine if home ownership or if renting is better for you. If buying isn’t right for you now, create a budget, start a savings plan, and reconsider in a year.