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Being a tenant has its benefits. For one thing, you're able to lock in your monthly rent and avoid unpleasant (and potentially costly) surprises beyond that point. If an appliance breaks, that's on your landlord to take care of.
On the other hand, homeownership offers a degree of stability that renting does not. When you rent, your landlord can opt to not renew your lease once it expires, whereas your mortgage lender can't take away your home loan -- or your home -- as long as you keep up with your monthly payments. And when you own a home, you get to call the shots -- you can paint your walls any color that suits you or get a pet without having to seek someone else's approval.
In fact, with mortgages rates currently sitting at record lows, you may be inclined to buy a home in 2021 to capitalize on those great deals. But is that the right move for you, or should you stick with renting for another year? Here are some questions to ask yourself to figure it out.
1. Do I have enough funds saved for a 20% down payment?
You don't necessarily have to make a 20% down payment to buy a home. Some lenders will let you put down less. But if you don't come up with that 20%, you'll be hit with private mortgage insurance, or PMI, which is a premium that's tacked onto your monthly costs as a means of protecting your lender. PMI doesn't need to be a deal-breaker, but it will make owning a home more expensive, so a better bet is generally to wait to buy until you've managed to save for a 20% down payment.
Furthermore, paying 20% of your home's purchase price will let you build equity in your home more quickly. That's a good thing, because you may one day need to borrow against that equity if unplanned expenses (home-related or otherwise) arise. Also, making a 20% down payment lowers your chances of ending up underwater on your mortgage -- a scenario that occurs when your outstanding loan balance is worth more than what your home could sell for.
2. Are home prices ridiculously inflated where I want to live?
Mortgage rates may be low today, but home prices across the nation are anything but. Limited inventory coupled with phenomenal rates has caused loads of inflation in the housing market, so a home that was worth $300,000 in January may be listed for $350,000 today. Do some research to see how high home prices are in your target neighborhood relative to what you'd expect them to be. If there's major inflation happening, 2021 may not be the right year to buy. If that's the case, it could make sense to wait a year and see if inventory opens up, which should drive home prices down.
3. Have I considered the many costs associated with homeownership?
Owning a home doesn't mean just paying a mortgage instead of rent. It also means covering property taxes, maintenance, repairs, and homeowners insurance (which is typically much more expensive than renters insurance). If you don't have much wiggle room in your monthly budget at present, and you're not getting a giant raise in 2021, then it could pay to keep renting in the coming year and hold off on buying until your financial situation changes. This especially holds true if your job isn't as stable as you'd like it to be.
Maybe 2021 is a great time for you to buy. Or maybe it's a bad idea due to inflated home prices coupled with your personal circumstances. Weigh your options carefully before making your choice, because the last thing you want to do is give up your lease and take the leap into homeownership only to regret it after the fact.
