Rent Vs. Buy

Many are contemplating on whether or not they should continue renting or take a leap and purchase their own home. In today’s market there a couple factors proving that right now is a great time to buy.  For instance:

Cost: Buying a home is actually less expensive than renting! Here’s why…

• Renting a home for $1,000/mo for 5 years is $1,000/mo x 5 years x 12 months/year = $60,000
• But buying a home for the same $1,000/mo for 5 years is less than $60,000!

When you buy a home the government gives you a tax deduction for the mortgage interest that you pay. While the exact amount may change let’s just assume that your tax deduction equals only $1,200/year or $100/mo. That means you get $100/mo x 5 years x 12 months/year=$6,000

Right now, you also may qualify for a First Time Home Buyer Program. That means if you haven’t owned a home in the past 3 years you can get additional help when it comes to financing your home.

Equity: The owner of the home is entitled to the equity in the home. Equity is the difference between how much the house is worth and how much you owe. (If a house is worth $200,000 and you owe $150,000 then the equity is $50,000.)

When you buy a home you have a mortgage payment each month. Generally, each payment has a principle amount, an interest amount, property taxes and hazard insurance. The principle amount of the payment reduces the amount that you owe on the property. (If you pay your mortgage payments for 30 years you will not owe anything on the home because you will have paid off the mortgage.) If you buy a home then your monthly payment reduces how much you owe so it is like paying yourself. But if you rent, your monthly payment reduces how much your landlord owes and it’s making them richer!

Timing: Right now is the best time to buy a home. The home values in the area have bottomed out and the interest rates on loans are at all time lows.

We are seeing homes that used to be $300,000 that are now selling at $250,000 or less! The experts say that we are at the bottom of the housing cycle and prices for homes will never be this low again. Then, as the market cycles back up you will be able to capture the new equity in your home.

With interest rates dropping at all time low, you could buy that $250,000 home for payments starting at only $1,600/month (principle and interest)!

Requirements: The qualifications for buying a home are nearly the same qualifications for renting a home. You need to have okay credit, a deposit and a decent job.

If you have a credit score of 580 (or better) then you can qualify for a FHA loan. A 580 FICO score is not considered good credit and may even be low enough to prevent you from renting. But it is a good enough credit score to buy a small home. If you have better credit then you can qualify for better interest rates with other types of loans.

The deposit for a house purchase with an FHA loan is 3 ½% of the purchase price. This amount is nearly the same as first & last month’s rent and a security deposit.

Having a decent job is essential for qualifying for any type of housing. Generally you need to have been in the same line of work (preferably the same job) for the previous 2 years to show stability in employment.