The cost of renting and buying has been rising over the past year, and while you might think choosing between the two seems easy, it doesn’t. In this guide we have come up with important information on why mortgage rates and rents are rising?
The question on many homeowners’ minds right now is whether they should refinance their mortgage or stay put with their current plan, but you also need to consider how rent prices are changing in your area as well.
Whether you decide to buy or stay put, here’s what you need to know about mortgage rates and rents going up before you make your decision.
Buying a home vs renting in your 20s and 30s
Knowing that rent is going up and mortgage rates are moving in the opposite direction can make it feel like a no-brainer. But while it might seem like homeownership will permanently save you money over renting—and it’s true for many people—it won’t necessarily save you thousands of dollars when you’re young.
If homeownership costs too much right now and you think housing prices could plummet or mortgage rates could rise significantly, there’s nothing wrong with renting instead.
When you’re ready to buy – how much house can you afford?
There are a lot of variables that go into deciding how much house you can afford. Mortgage rates have been hovering in the historically low territory – but they’re now on their way up again. It would help if you based your home-buying decision on an apples-to-apples comparison of mortgage rates vs rents.
How much should I save for a down payment?
A $25,000 down payment is only needed if you’re getting a jumbo loan. A jumbo loan is any mortgage where your loan amount is more than $417,000. If you’re looking at buying a house below that number, then $25,000 will be enough.
If you choose to put less down on your home purchase, though – which could lower monthly mortgage payments – lenders usually require private mortgage insurance (PMI). PMI protects lenders in case of default on loans under 20% or 25% equity.
Where should I live based on my income?
Am I thinking about buying a home? If you’re getting ready to move into a new apartment or house, here are five factors you should consider.
Is it cheaper to rent or buy?
Where can I afford to live?
Should I put down money on a place now or pay for it in mortgage payments later?
What type of mortgage loan should I get for my new home purchase?
Do I qualify for an FHA loan with my credit score and income?
And is there anything special I need to know before buying a foreclosure or other property that hasn’t been lived in before?
Find answers to these questions and more by reading our newest guide, How many houses Can I Afford?
Mortgage Loans vs Renting
We also have guides that cover these topics: How Much House Can I Afford?: Mortgage Loans vs Renting; Apartment Hunting; How Much Income Do I Need To Buy A Home?
How much mortgage can I afford?
Unless you want to be house poor, you mustn’t overextend yourself. You need to know how much mortgage you can afford. To figure out how much home you can buy with a certain amount of money, multiply your income by 28.
The result is approximately how much of your annual income will go toward your monthly mortgage payments—i.e., if you make $50K per year, a $50K home will cost around $1,500 per month.
Tips when shopping for mortgage lenders
Mortgage rates are at historic lows right now, and it’s a great time to buy a home if you’re ready. With interest rates still relatively low, now may be a good time for you to refinance your current mortgage loan—saving money on monthly payments by locking in an interest rate that is currently lower than your current mortgage rate.
When is the best time to lock into my mortgage rate?
Interest rates change frequently—and rising mortgage rates are becoming increasingly common. Locking into a fixed mortgage rate will ensure you won’t be exposed to market volatility and prevent your payments from increasing unexpectedly in the future.
But when is the best time to lock? While there’s no definitive answer, it depends on your financial situation. One thing we can say with certainty: if you have any chance of refinancing or moving before your mortgage term expires, consider locking in sooner rather than later.