Rent vs Buy? What are the considerations?

256px-3D_Realty_HandshakeBefore you consider obtaining more debt for a mortgage, how much mortgage should you get? Lenders look at what is called your debt-to-income (DTI) ratio (with target ratio percentages). So what is your DTI ratio? This calculator determines your DTI for you and also discusses the various considerations debt may have. Both sites above help you understand the ins and outs of DTI. In general, the higher your DTI ratio the higher risk as a borrower you represent to lenders. This also gets combined with your credit score to determine what interest rate you may qualify for … the lower your score, the higher your interest rate will be.

Should you rent or should you buy? Here is a comparison calculator that walks you through the various considerations that go into making a wise comparison.

How Much of a Down Payment Do You Really Need to Buy a House? It depends on what kind of loan you get.

Furthermore, Understanding Mortgages and the mortgage process A to Z is important before you get one, especially the first time.

Finally – and most importantly – there is a difference between being pre-qualified from a lender versus pre-approved! Understanding these differences helps you understand the process of getting a mortgage loan from a lender.

Owning a home (permanent housing) takes much more responsibility than renting (temporary housing). Other factors to consider deeply include … job & income stability, location stability (work always in the same area) since it is easier to move when renting than when owning, and duration stability or how long you actually can stay in the home through good times or bad. Buying more home, or taking on more debt, or setting up higher payments (shorter loan periods) all depend on these stability factors which don’t come into play while renting.

Finally, there’s the question of whether you should pay more towards your mortgage, or save for retirement? Be careful you don’t become house poor, nor where all your wealth is in an illiquid asset (unless you want to consider a reverse mortgage to use that wealth later when your older than 62).

Photo By lumaxart (3D Realty Handshake) [CC BY-SA 2.0], via Wikimedia Commons

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