Reduce Debt or Buy Now? How to Know What’s BestApr 23, 2019
Rent vs. buy, reduce debt or save more money? There are a lot of decisions to make in today’s economy, especially when it comes to living in a big city. High housing prices coupled with rising interest rates and new mortgage rules can add to the confusion and the stress of finding affordable housing. In this blog post, we want to outline some of these factors and help you navigate which options might work for you.
How to know if your finances are as ready to buy as you are
You’ve been browsing real estate websites and paying more attention to “For Sale” signs around town. Is your budget as ready as you are? Ask yourself these questions before you take the next step:
- How secure is your income?
If you’re a dual-income household, think ahead to future circumstances such as the birth of a child which would not only add to monthly expenses, but could reduce your household income if you choose to take parental leave. It’s also a good idea to factor in job security before taking the dive into home ownership.
- How are you managing your debt load?
Lingering student loans, high-interest credit card debt and a line-of-credit can create a roadblock between you and your financial goals. If you’re struggling to keep on top of those monthly debt payments, now is the time to make a plan and reduce debt before buying a home.
- Can your budget accommodate more expenses?
Owning a home comes with a laundry list of new expenses that you may not be prepared for. Everything from your mortgage payment to lawn maintenance will fall on your shoulders. A good rule is to allow for your mortgage payment plus an additional 40 per cent each month for repairs, expenses, etc.
If you’re renting now, consider what your homeowner’s budget might look like and see whether you’d be better off renting for a few more years while you build up a nest egg. Check out this rent vs. buy calculator or use our budget worksheet to get an idea of your current and future budget.
How to improve financial readiness before you buy a home
If you’ve reviewed your finances and you’re not quite ready to buy, that’s ok! Here are a few steps you can take to improve your finances and get back in control of your debt.
- Build a solid emergency fund. If you don’t have one, you need to start one ASAP! Use this guide to build an emergency fund that you can lean on when you need it, instead of turning to debt.
- Tackle that debt. As mentioned above, debt can stand in your way. Use our debt calculator to tally up your debts and then check out your options using our repayment options calculator.
- Stay motivated. Don’t let financial goals fall to the wayside. Set SMART goals you can stick to and keep checking in with them. You can always revise your goals as you go, but the key is to keep moving forward, not backward. Also, follow people who inspire you to stick to your goals such as personal finance blogger Kerry Taylor from Squawkfox.
Should you buy right away or continue to reduce debt? Connect with us on Twitter for more debt tips. #LeaveDebtBehind #HomeBuyers #DebtSolutions