Rent vs. own: How to transition from renting to first time home buyer

When you own a house, you don’t just own a property. You own a place you call home. While renting gives you a certain flexibility in life, it also limits you. For example, you can’t just makeover the entire place on a whim. Also, you’ll never view a rented place as a place for you to grow your roots. That’s why many people make a shift from renting to owning a property. So, if you need help planning your shift towards owning property, we’ll share the most important steps. 

Assess your finances and financial habits

When you rent a house, you have a fixed monthly cost. But, if you want to buy a house, you’ll probably have to secure your finances. Whether through a loan or a mortgage, you’ll have to secure a source of finances. Thus, you need to assess your finances and your general financial health. Start by evaluating your income. Next, consolidate expenses, including debt and other recurring costs. Then, assess your savings or how much you can save from now on. Your finances are a foundation for the next steps on this list. 

Set clear objectives

Next, we have to set a timeline for house-owning goals. This timeline will help you define the steps you need to take to either save enough for a downpayment or find the perfect location. You can even visually represent this timeline and put it in front of you—see this as a home-buying vision board. This way, you’ll stay accountable and remind yourself daily of your goal. 

Check your credit score

If you want to save yourself a lot of trouble, check your credit score before starting the process. It might take up a bit of your time, but you’ll know if you are eligible for a mortgage. If there are any problems, you’ll have time to address them.

Research all options in your country

Every country is different, so you should research options for buying or investing in a property. For example, in Australia, you can invest in a specific type of property and get a return on investment for an extended period. If you are interested to buy DHA, you’ll get guaranteed income, and you won’t have to worry about property management. This way, you can invest money, get a return on the investment and secure additional finances for your next purchase. 

Understand your responsibilities as a homeowner

Next, you need to understand your responsibilities as a homeowner. Especially if you’ve never owned it before, you have to know that there will be additional costs. Homeownership also entails maintenance costs, any repairs or upgrades, home ownership fees and property taxes. Basically, all the things you didn’t have to worry about while you were renting. 

Start saving for closing costs as well

Not only do you need to save for a downpayment, but you also need to cover the closing costs. So, increase your savings goal by at least 20%. This way, you’ll have breathing room within your budget for all the costs. Also, the more you have in your savings, the better your options to secure better loan terms. Ideally, your savings should cover the downpayment plus the closing cost. 

Dreams vs reality

At this stage, it’s time for a reality check. What do you dream of? And what can you actually afford? Now’s the time to determine the type of house you can afford. So, put aside your dreams for a second and take an honest look at what you can afford. Since you’ve already assessed your financial health, it’s time to determine if you can afford the monthly mortgage payment. 

Mortgage and pre approval process

First, you need to research your mortgage options. Every bank is different, so there can be differences in interest rates and conditions. Don’t rush the process; the goal is to acquire the most affordable loan. Look into interest rates, terms, and conditions.

Next, you need to get pre-approved for a mortgage. You can use this during the negotiation process with sellers, as it shows how serious you are. It acts as proof that you are actually capable of buying a house. 

Start the house-hunting journey

Everything we’ve mentioned by now is just 30% of the journey. Let’s say that the house-hunting journey will take up an additional 60%. You can start this process on your own or hire a real estate agent. Partnering with a skilled agent can be a life saver as they know the market, prices and how to help you secure the best deal. 

Get ready to negotiate

Negotiation is a skill, so each house is an opportunity to practice your negotiation skills. Don’t shy away from negotiating better terms and the price. Listen to your real estate agent and base your decision on the market and property condition.

Lastly, when you find the home you like, and negotiate the terms, it’s time to do your due diligence. Don’t skip on property inspection, and ensure there are no hidden issues or liabilities.