It’s Cheaper to Own Than Rent: Should You Buy a Condo Now?

??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????It is now better to own than to rent in ALL of the 100 largest metro areas. According to an analysis by the real estate site Trulia, it’s 38% cheaper to own (including mortgage, insurance, taxes and maintenance) than to rent. There are two key reasons for this amazing advantage: 30-year fixed mortgage rates are still at historically low levels (a little over 4%) and rents have been rising faster than home prices.

If you have been sitting on the fence about buying your first condo, is it time to jump in? Financial experts are saying that you should buy, but is it the right move for you? It may be, depending on how you answers these three questions:

1.) What’s your time frame?

Do you think you’ll be staying in your current community for several years? Buying and selling a condo carries all kinds of expenses that will quickly eat away any financial advantage of owning if you buy and then must sell within a couple of years. Not to mention the hassle you’ll go though, both as a buyer and then as a seller. Dealing in real estate is a highly stressful and an enormously time-consuming process!

2.) Are your finances in order?

The first item to check is, do you have enough saved to cover the down payment and the closing costs on a condo that can meet your (and your family’s) housing needs for at least five years. Depending on the type of mortgage the amount is anywhere from 3.5% (federally guaranteed FHA loan) to 20% (conventional mortgage) of the price for the down payment, plus up to 5% more for closing costs. (However, FHA loans allow you to finance your closing costs as part of the loan.)

Next check your FICO score (range 300-850). This credit score is used by lenders to determine whether they want to lend to you. According to Bankrate.com best mortgage loan rates are available to buyers with a score of 720 or better. However, if your score is higher than 580 you will be eligible to apply for a 3.5% down payment, federally guaranteed FHA loan. If your score is below 500 it is unlikely that you will be able to obtain a mortgage to buy a condo.

Once you know that you have your down payment in the bank and a decent credit rating, the third item to consider is your income, is it high enough to carry the ongoing costs of owning your condo and also cover all your other expenses. Most lenders, including FHA, require that you monthly condo ownership costs (mortgage, taxes, insurance, maintenance dues) cannot take more than 31% of your monthly GROSS income (that is, your income before any deductions.) If you have car and student loans and credit card debt, total of all your monthly debt payments and condo costs cannot exceed 43% of your gross income.

3.) How stable are your personal and professional lives?

You have money saved, a sufficiently high FICO score and a good job, so should you now jump to buy? The answer is still maybe. Consider what is going on in your personal life? Are you in a stable relationship that might lead to starting a family in the foreseeable future and require a bigger place? Are you active in the dating pool still looking for The One or is your social life settled? Are you happy with your job situation? If your employer’s business stable? Are there other job opportunities in your market, if you have to make a change?

If you are in a stable job with a good employer, your personal life feels settled and all the other pieces are in place, it’s time for you to visit your local banker and get pre-qualified for a mortgage loan.

Congratulations!  You are now ready to bid your landlord goodbye and start looking for a condo of your own.

Author My First Apartment
Seija Goldstein

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Seija Goldstein is My First Condo's General Manager and occasional blogger. She is a business consultant to media companies, and a long-time shareholder in a large New York City co-op. She has survived both kitchen and hallway renovations and is about to redo couple of bathrooms.

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