The American Bankers Association Foundation recommends considering the following questions when considering to rent or buy a home:
1. How much money do you have saved up?
Down payments are typically 5 to 20 percent of the price of the home.
Security deposits on rentals are usually about one month of rent or more if you have a pet.
Whatever you decide, keep enough in savings for an emergency-three to six months of living expenses.
2. How much debt do you have?
Take into account your current and expected financial obligations (i.e. car payment, insurance, credit card debt & student loans).
- Ensure you will be able to make all the payments in addition to the cost of your new home.
- Keep total rent or mortgage payments plus utilities less than 25-30 percent of your gross monthly income.
3. How long will you stay?
The longer you plan to live someplace, the more it makes sense to buy.
- Over time, you can build equity in your home.
Renters have greater flexibility to move and fewer maintenance costs.
4. What is your credit score?
A high credit score indicates strong creditworthiness.
A low credit score can keep you from qualifying for the rental you want or a low interest rate on your mortgage loan.
5. Have you factored in all the costs?
Create a hypothetical budget for your new home.
- Find the average cost of utilities, gas, electricity, water and cable.
- Will you have to pay for parking or trash pickup?
- If you're planning to buy a home, factor in real estate taxes, mortgage insurance and possibly a home owner association fee.
6. Location, location, location.
Consider this: For every $1 a family saves on housing in an area that is more affordable, they spend $0.77 cents more in transportation.
Think carefully about your commute and how much household income will be required to meet both housing and transportation costs.