Should I buy a home or keep renting?

Everyone wants to own a home instead of staying in a rented one but buying a home is one of the important decisions that one takes in his/her life. As it is associated with one’s emotions, family and personal reason, its important to take the right decision at the right time. So before buying one should be totally honest to himself and ask the entire related questions that can affect the buying process including budget, requirements and the purpose of use, whether personal or business. Therefore it becomes vital to know the economic differences in other words the advantage and disadvantages of owning a home.

First of all if you want to buy a home for economic gain then its better to invest in the stock market. Home buying generally offers a very low investment return compared to stock market that has long-term average return within 8 to 10 percent. The advantages of buying home lies in the equity over time that increases with home values rise thereby decreasing mortgage balance. But as far as its disadvantage are concerned, we can find that the after purchase repair or renovation cost have to bear by you as the owner. Again if you have paid a large down payment then it will be difficult to shell out money for repairs. Besides there are other pros and cons in both renting and owning a home.

Assess your condition: It is important to know your values before buying a home by finding answer to some questions like:

• Do you have a stable income or employment?
• Are you planning to stay in the home for a longer period of time?
• What kind of house you are planning to buy and will it be beneficial for your family in long run?
• Do you have a good credit record for applying a mortgage loan?
• Do you have a good amount of savings for the down payment?

If answer of most of the above questions is yes, then the nest question you are required to answer is how much home you can afford.

How much you can afford?

The most important question that you need to answer is how much money you can afford or how much you can borrow. Again your affordability is the amount that you can afford as monthly installment for the repayment of mortgage loan. Mortgage lenders consider different things before approving your loan application like your credit history, monthly income and down payment. Again to know the right amount you can afford you need to understand the debt to income ratio. This helps in calculating the maximum housing expenses or your family living cost and the monthly mortgage payment.

Most of lenders prefer that your monthly mortgage payment shouldn’t exceed 28% of your monthly gross income. You can calculate your monthly housing expenses by multiplying annual salary with 0.28 and dividing it by 12. The monthly mortgage payment includes principal amount or the net loan balance, interest rate, real estate taxes, and homeowner insurance.

Again Debt to Income Ratio helps in calculating your maximum monthly debt obligation. In mortgage loan rule the maximum monthly debt obligation should not more than 36% of your gross income. Debt to obligation includes mortgage loan, car loan, insurance, credit card bill, and payments related to child support and other fees. This can be calculated by multiplying annual salary by 0.36 and then by dividing 12.

Therefore both the monthly mortgage payment can be calculated on the basis of monthly housing expenses and the maximum monthly debt obligation. Another thing that one needs to consider while calculating the monthly mortgage payment is the mortgage taxes and the home insurance or property insurance against any kind of theft.

Thus, if you find positive answer for all the above questions and sure that you can afford a particular amount as monthly payment irrespective of your monthly expenses and other monthly debts then there is nothing wrong in buying a home. After all owning a home not only provides a big amount of investment but also provides different social status.