There’s nothing quite like a place to call your own. Here are some practical tips for renting and eventually buying a home.

Renting gives you more flexibility.

• Renting a house or apartment can cost more per month than buying a home and making monthly mortgage payments.
• However, there are advantages: the property taxes and maintenance are not your responsibility. The owner of the property takes care of those.
• You usually rent in 1-year terms, but some rentals are month-to-month.
• You have the flexibility to move more often than owning a home.
• Your credit score and past rental history can affect whether your rental application is approved.

DID YOU KNOW? Approximately 35% of the U.S. population are renters, and renters are more likely to be younger than homeowners.

Can you rent without good credit?

If you don’t have a credit history or it’s not a great credit history, you may have to have someone (like a family member with good credit) co-sign your rental agreement.

This means that if you can’t pay your rent, the co-signer will be responsible.

The co-signer’s credit will be checked, alongside yours, during the rental application.

Buying a House

It’s nice to have a home of your own, but there are many more costs than renting. That’s why renting might be a good idea when you’re starting out. You’ll have to pay for:

• The Down Payment (20% of the total cost is common, but first-time buyers or military veterans might qualify for down payments as low as 3-5%)
• Monthly mortgage payments (30 years is common)
• Property Taxes
• Maintenance and Repairs
• Homeowners’ Association (HOA) Fees—not every neighborhood has these
• Insurance

How much does a house cost?

The median price of a house in the U.S. is $417,700. Here’s how much a house like that would cost you in terms of the 20% down payment, monthly mortgage payment, property tax and homeowners insurance:

How big a difference does your credit score make on a $334,160 home loan?

Your credit score affects how low the interest rate is on your mortgage. In this case, let’s look at 3 different rates—for excellent credit, good credit and fair credit in 2024. 

Now here’s how those 3 credit profiles would affect the total price you end up paying for the example mortgage above–a median-priced home of $417,000 with 20% down.

Insurance: Homeowners and PMI
There are two main types of insurance to protect homebuyers and lenders from unforeseen events: Homeowners Insurance and Private Mortgage Insurance (PMI).

Homeowners Insurance
Homeowners insurance safeguards your home and your possessions in the event of theft or damage, but it also protects your mortgage lender (if your home has a mortgage).

While homeowners insurance isn’t required by state or federal law, mortgage companies require that borrowers carry homeowners insurance coverage that is equivalent to the property’s fair value. 

Private Mortgage Insurance
One of the biggest hurdles when it comes to purchasing a house is the down payment. Lenders normally require a 20% down payment to qualify you for a mortgage, but with private mortgage insurance it’s possible to get a down payment closer to 5% (depending on the lender). The advantage is you can buy a home sooner by making a smaller down payment.

Are there any disadvantages to private mortgage insurance?
PMI policies increase the monthly cost of homeownership. The average yearly cost of PMI falls between 0.46% and 1.5% of the loan amount, depending on your credit score—so if you have great credit, you’ll most likely get a lower PMI rate.

You might decide that buying a home sooner is worth it even if it means paying PMI premiums every month.

Key Points

1. Many people rent when they are first starting out, then buy a home later.
2. Buying a house usually involves paying a percent of the price up front and paying the rest off in monthly mortgage payments.
3. Having a high credit score can save you thousands of dollars by the time you pay off a mortgage.