Most renters dream of transitioning from renting to owning homes. For some, it is more financially responsible to buy. While leasing an apartment is cheaper in the short term, buying a home is most likely the largest investment and asset a person ever owns. The tricky part is determining when is the best time to switch from being a tenant to a homeowner.
Consider these four factors before breaking a lease to purchase property.
Using the Breakeven Analysis Methodology structured by Zillow, prospective house hunters can mathematically calculate the number of years at which buying becomes more cost-effective than renting. To determine the cost of owning a home, individuals should find the total sum of their down payment, closing costs, mortgage, property taxes, insurance, maintenance and renovation, utilities, as well as condo or community fees. However, even with all costs included, the home hopefully sells for a profit down the road.
Renting costs are made up of deposits, broker fees, monthly payments, utilities and insurance. It is more advantageous to own a property when the purchase cost is less than or equal to the total sum of monthly rent costs. Online tools are great for those who want or need to determine if they should begin searching for a home to buy. Zillow calculates how many years, on average, the breakeven horizon occurs in major cities.
Observe Market Trends
The housing market has fluctuated immensely throughout the past 10 years. Observe the times of year houses sold for less than their original listing prices to get the best deals. If homes in a neighborhood have consistently sold for less than their estimate value, it’s probably a good time to buy. However, areas in trending neighborhoods are going to be inflated and homes are going to cost more than they typically would.
Homes centrally-located or close to water are typically steep in price. Keep location-related price variances in mind; some neighborhoods are always going to be more expensive, regardless of the time of year or popularity.
Individuals should not buy a home if they can’t afford it. Bad credit leads to a significantly more difficult process of trying to obtain a mortgage. The likelihood of being approved for a low rate is compromised by negative credit history.
Work on improving a credit score prior to applying for a mortgage. Then calculate the monthly cost of owning a home. The higher the down payment, the lower the monthly mortgage cost and the faster a person owns their property outright. These calculations may affect how prospective buyers save for their down payments or stretch budgets to afford more expensive homes.
Anticipating a baby? Planning on traveling for an extended period of time? Desperately need a new car in the next year? These are all factors to take into account when deciding on the right time to purchase a home. Work with a financial planner to create a strategy. Prospective homeowners can confidently rent while taking the appropriate steps to prepare to own properties.
Obviously, the decision to buy or rent differs on a person-to-person basis. There are many factors in play within a home purchase, but these four are good starting points.
I can’t help thinking about goals this time of year. While I love people talking about getting in shape and fixing their finances, I wonder just how many of them will finish the end of 2014 satisfied with their progress.
When I reviewed 2013, I mentioned that we paid down a good chunk of the student loan while managing some financial setbacks. We’re happy with that, but that wasn’t the only achievement made.
NaNoWriMo’s Monthly Challenge
One goal that I am extremely proud of with 2013 was completing the NaNoWriMo, it’s a challenge where participants are encouraged to write a novel (defined in the challenge as 50,000 words) in November.
It was a ton of work and there were quite a few times that month that I wanted to quit, but when December 1st came I had a significant portion of a story written down. Something that had been on my personal wishlist was done and it was on the first try of this challenge.
That got me thinking – what made NaNoWriMo work for me when I’ve started and stopped writing so often? With the dust cleared in my mind and the benefit of some hindsight, I think I have an explanation – the monthly challenge took a huge task and made it into a SMART goal.
How to Master Your Money with SMART Goals
I’ve s talked about SMART goals a few times, but as a refresher, here is a summary of what they are:
Specific: Choose a specific goal. Don’t say ’save more’, but instead choose ‘put aside 5% of my paycheck into my emergency fund.’
Measurable: How do you know when you reached your goal? If you are saving an emergency fund up, consider setting aside 3-6 months of living expenses in the account.
Attainable: Work on a few goals at a time so you don’t feel overwhelmed. Be gazelle intense on the ones you have.
Realistic: Make sure your goal is something you can do and truly believe in. Have a plan of action that you can sustain.
Time Based: By setting a deadline, you can work backwards and break down the steps into mini goals.
Writing Over 50,000 Words in One Month with NaNoWriMo
There were several factors at play that pushed me towards winning the challenge. The more I looked at it, the more I saw how SMART goal framework worked with NaNoWriMo.
Specific: I didn’t have to write a novel (which is a broad term with varying amounts of pages), I was writing 50,000 words by the end of November.
Measurable: Every night once I was done with what I wrote, I copy and pasted it onto the word count tool to track my daily and overall progress. It was a simple tool that made it easy to see where I was with reaching my goal.
Attainable: The big goal was broken down further and each day I worked hard to get my 1,1667 words down on the computer.
Realistic: I wasn’t trying to write a masterpiece. Perfect is the enemy of good – I was simply going to write down 50,000 about the story that was forming in my head.
Time Based: I had 30 days to get it done if I wanted to win and get the prizes. After that I could do whatever I wanted.
Was I exhausted at the end of the month? Yep, but it felt so good to accomplish something I’ve wanted to do for years.
Monthly Money Challenges
What does this have to do with finances? Plenty. If you’re looking at mastering your finances this year, doing a monthly challenge for your money goal can be an extremely powerful tool in your arsenal. Which do you think you’ll be able to do better with by the end of this month – “saving more” or “save $5/day in January”? Having something concrete for a limited amount of time can be very motivating.