One of the most common paths to home ownership is renting for a few (or more) years until you’re ready to buy your first home. People take this path for many reasons: to figure out where they want to live, to save up for a down payment, and to learn what it takes to take care of a home before buying one themselves.
If you’re on this very path, you might be wondering: how do you know when you’re ready to stop renting?
It’s a great question, and it’s not the same for everyone. In this article, we’re going to explore the renting vs. owning experiences in a bit more detail, then walk through 6 signs you’re ready to own your first home.
Let’s dive in!
- There is no one-size-fits-all answer to renting vs. owning — it depends on an individual’s financial situation and personal preferences.
- Steady employment, debt-to-income ratio, and credit score are three important factors that mortgage lenders consider before approving a loan.
- It’s important to save enough for a down payment and an emergency fund before you stop renting and look to buy.
- Feeling personally ready to stop renting and buy a home is equally important to being financially ready.
Renting vs. Owning: How is it different?
The real answer to the longstanding debate about renting vs. owning is that neither option is better than the other. The right choice for you depends on where you are financially, your life situation, and your preferences for taking on responsibility related to your home.
Renting, for example, often requires a credit check that’s much less stringent than that required to buy a home, and your debt-to-income ratio is usually not as important. Renting offers more flexibility to move if you want to, has limited expenses related to upkeep and repair, and doesn’t come with worry about things like long-term home value or real estate taxes.
But home ownership has its benefits too. It gives you total control over how you want to make your house a home. You can build equity over time that can contribute to financial stability. You can build long-term relationships with neighbors and others in your community.
A common path people take is to rent for many years, then buy a home when they feel ready — thus enjoying the benefits of both scenarios. But it can be challenging to determine when exactly you’re ready to make the jump from renting to owning a home. In the next section, we’ll walk through X signs that you’re in a good position to stop renting and consider buying your own home.
6 Signs You’re Ready to Stop Renting
You have steady employment
Steady employment is a must when it comes to home ownership. A typical home mortgage is locked in for 15 to 30 years, meaning you’ll need to have reliable income to make your monthly payments over this timespan.
Employment is one of the factors mortgage lenders take into account when deciding whether to approve you for a loan. That’s why it’s a good idea to maintain your employment for at least several months (but more ideally one year or more) before diving into the home buying process.
You want to stay where you are
Buying a home is a fairly permanent decision. As such, you want to be certain about the location where you choose to live. Remember: one of the primary benefits of renting is that it’s easier to move around when you want to.
One of the surest signs that you’re ready to stop renting, then, is the feeling that you really want to stay where you are for at least the next several years (if not more). If you’ve been living in a city, town, or neighborhood for a while and really love it, it might be time to start thinking about buying your own place there.
Your debt-to-income ratio is stable
Debt-to-income ratio is another factor mortgage lenders take heavily into account as they decide whether you’re a good candidate for a loan. By definition, your debt-to-income (DTI) ratio is the percentage of your monthly gross income that goes to paying off debt.
Lenders generally consider a DTI ratio healthy when it’s under 35%.
The reason lenders care about it so much is because it’s indicative of how well you’ll be able to handle a mortgage payment every month. Before you decide to stop renting and begin the search for a home, it’s a good idea to calculate your debt-to-income ratio on your own. If it’s low, you’re likely ready to buy. If it’s high, work on paying down your debt before you pursue home ownership.
You have a good credit score
In addition to the debt-to-income ratio, mortgage lenders will look at your credit score to determine loan readiness. Your credit score shows your history of managing debt, trustworthiness in making on-time payments, and overall financial health. And while mortgage options do exist for individuals with lower credit, applicants with low scores will end up with much higher interest rates.
On the other hand, a healthy score of about 690 indicates that you’re likely ready to stop renting — and that you’ll get a good rate on your mortgage loan.
You’ve built up some savings
In addition to a healthy DTI ratio and credit score, you should have enough savings to make a down payment and have money left over in an emergency fund (ideally, at least six months of expenses) before you stop renting and look to buy a home.
Many first-time homebuyers make the mistake of saving for a down payment only, learning only after making their home purchase that many unexpected expenses can pop up. That said, you don’t need the traditional (and hefty) 20% down payment in order to buy. First-time homebuyer programs (and homebuyer assistance programs in general) offer options to put as little as 3.5% down on your home and still get approved for a decent mortgage rate and payment.
Learn more about first-time homebuyer programs here in Ohio.
You feel ready to buy
Last but not least, ask yourself: do you feel ready to buy?
Even if you can check yes on all of the “sure signs” we’ve covered in this article, there’s no rule that says you should or have to stop renting at any particular time and purchase a home instead. Owning a home is a significant and long-term responsibility — one you should want to take on and never pursue out of obligation.
All that said, if you’re in the right position to buy and feel ready to do it, be confident in your choice! Looking for a home of your own is exciting, and you should enjoy the process as much as the actual purchase.
Moving to the Dayton area?
If looking to move to Dayton or its surrounding suburbs, Oberer Homes can help you find (or build!) the home of your dreams. Contact us today to get started.
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