When it comes to renting or buying, having the right insights can make a huge difference to your financial health. At Moven, we’ve come up with a number of rules of thumb and key insights to help you make smarter financial decisions.
1. First, your monthly housing cost – rent/mortgage, utilities, maintenance – should be less than 1/3 of your income. Simply divide your annual income by 40 and use that amount as your maximum.
2. Second, consider buying a home only if you plan on keeping for at least 7 to 10 years. That’s about the a typical economic cycle; anything less and you risk losing your money to broker and bank fees.
3. Next, look for a property where it’s price to rent ratio is comparable to the neighborhood average. To find the price to rent ratio, simply divide the purchase price by the annual cost to rent the same property (or one like it).
4. If you live in a pricey city, try to keep your housing spend in line with your peers. Spending less than a third of your income on housing may be harder in bigger cities, but don’t let yourself become house rich and cash poor!
5. When buying a home, be conservative with your expectations of its future value. Think of your home as a way to protect rather than grow wealth. Remember that home prices don’t typically increase that much more than the rate of inflation.
6. Take advantage of the current low rates, but do so responsibly by putting 20% down and having 10% set aside. Buying a home often has many unforeseen expenses, so be sure to have a buffer.
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