Renting vs Buying a Home

by Marquita M from Milwaukee, Wisconsin and from Hill from Portland, Oregon

Marquita asks Kate about renting vs buying a home and Hill has questions about his large down payment. (Find Hill's question in the comment section below.) Kate, My question is should we rent or buy a home? To live the American Dream... where should we start and what should we do so that we can become homeowners and stay above water?

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Marquita continues... Me and my husband together make like almost $45,000 a year, I believe if I am counting right and our credit score is 560 and 580. Would we even have a chance? I am ready not sure how to go about everything and what is best for us. Thank you for your time, Marquita

Kate Answers: Renting vs Buying a Home

***zz-portrait-left.shtml*** Dear Marquita,

Buying a home is a large, long-term purchase. And in the end, only you can decide if renting or buying a home is better for you.

Of course, I am partial to home buying whenever possible. Regardless, let's look at a couple of ways you can come to your own conclusion.

Babe Ruth and Home Buying

You may already know that well-meaning people seem to come out of the woodwork to tell their "nightmare experience of house shopping" which can be paralyzing to more than a few would-be home buyers.

But Babe Ruth said,
"Never let the fear of striking out get in your way."
So this is the first piece of advice I would offer. Don't let horror stories frighten you from jumping wholeheartedly into the home buying process. What's the worst that can happen if you are not approved for a loan? You rent another year until you get your ducks in a line to try buying again.

Affordability and Buying a Home

Secondly, consider how much you can afford. A lot of home buyers lean on the bank to tell them. But when you are shopping for a house to rent, you pick which rentals to go see, based on your budget. A home purchase is no different.

Remember that mortgage companies follow general guidelines set forth by government entities to qualify home buyers. Based on that, keep in mind that banks will qualify you for a mortgage. But don't assume their analysis means you can afford the home loan they offer. Go to How Much Mortgage Can I Afford for more details on looking out for yourself.

Mortgage Pre-Approval and Home Buying

Thirdly, get yourself lined up for Mortgage Pre-Approval. Think of pre-approval as a trial run for the actual mortgage process once you've made an offer on a house. The test drive. It can help you decide whether you want to buy a house or continue being a renter.

But again, don't be afraid to borrow less than the bank will loan you. Only you know what you can afford. Get the rest of the lowdown on Mortgage Pre-Approval here.

Credit and Buying a House

During mortgage pre-approval, the bank will look at your credit report and give you a game plan to improve your credit scores. That will be beneficial for renting or buying a home.

Now if the bank says you have a year or so before buying a house, you can always rent and at the same time work on improving your credit.

Ask Kate or Comment

Marquita, one more thing. Is this page is helpful to you? I'd like to hear back from you. You can comment on this page. (Follow the link near the bottom of the page.) Or Ask Kate another question.

Have You Seen these Recent Ask Kate Answers

Best wishes,
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Buying a Home with Large Down Payment - Questioning Loan Rate
by: Hill from Portland, OR

Hi Kate, This is my first mortgage. I have been saving for years, I am working full time, and just found a good place to buy. My credit is 810.

The house is $200,000 and I have $170,000 to put down. Can I take out a $30,000 loan (I can pay it in 10 years)? Or give less down and take out more loan? I don't like debt. What do you think, and thank you so much.

Hi Hill, Kate here. What do I think? Your financial plan for affordable homeownership is remarkable!

A couple of tips.

1. The yield on $30,000 is less to lenders than a $300,000 loan amount. So get a couple of Good Faith Estimates. Go here to understand the Good Faith Estimate form that lenders are required to use.

Learn what to expect and how to protect yourself from unnecessary charges.

2. After buying the house and settling into your new life as a homeowner, begin this program to pay off your mortgage sooner than you thought possible.

Thanks for writing.

Best wishes in home buying, Kate

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You can also ask Kate about your mortgage at Ask Kate About Buying a House.

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