Owning vs. Renting a Home

Buying a home in order to build equity is one of the main financial reasons prospective buyers jump into the market. At least that was a major factor prior to the financial crisis of 2008, when the U.S. housing market suffered widespread losses. Homeowners and prospective homeowners may now look more closely at the costs and benefits of such a large transaction.

Yet while the sobering effects of the housing crisis may have prompted a more cautious approach by buyers who are more realistic about the level of equity they can build in their homes, the drive to be a homeowner remains strong. It’s mostly about freedom: The ability to paint the walls whatever color you want, or know that a landlord is not going to raise your rent or ask you to leave.

Here are a few points to consider when deciding whether homeownership or renting makes better sense for you.

Reasons to rent
  • Flexibility. Renting allows you to explore an area before making the longer-term commitment to homeownership. Unless you are certain about a specific neighborhood, renting allows time for research and discovery.
  • Career uncertainty. If you think you might need to move in the near future, or are mulling job changes that span several areas of town or are located elsewhere in the country, you might want to rent. Buying ties you down to a greater extent.
  • Income uncertainty. If you expect a pay hike or cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.
  • Bad credit. Creating a history of on-time rental payments can help you build the sort of credit you’ll need to qualify for a mortgage.
  • No maintenance expenses. When a pipe leaks, you don't head to the store; you head for the telephone and call the landlord.
  • Utilities (sometimes) included. In some instances, the landlord may pay for many utilities such as water, sewer, garbage, and, in some cases, even heat and hot water.

But there is a downside, too: You may have no control over the fluctuation of your rent, a big-budget item that can change often. Long-term budgeting becomes more difficult.

Reasons to buy
  • Equity. When you pay rent, you are paying your landlord’s mortgage or adding equity to his or her bank account. However, when you have a home mortgage, you increase your degree of ownership in your home with every payment. A general rule is that if you intend to stay in your property for at least five to seven years, the costs of purchasing the home are more likely to be offset by accrued equity and increased housing value. In the event that equity in the home grows to more than a 20-to-80 percent loan-to-value ratio, you will be able to borrow against your equity in the home. This can be cautiously used should you need capital to pay for major purchases. If interest rates drop, you can refinance your mortgage at more favorable rates, or, once you've paid the entire mortgage off, borrow against the equity in your home to fund major purchases such as a second home or your child's education.
  • Tax deductions. You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. You can keep the first $250,000 in profit you make when selling the home if you're single, or the first $500,000 if married. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.
  • Creative control. You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Go ahead and paint them mango! Wish you had another room? Go ahead and add one.
  • Maintenance choices. If you live in a house, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a condominium or homeowners' association, you may pay a monthly fee to have maintenance work covered by the association's contractors.

While a home is a good investment -- and let's face it, you have to live somewhere -- many financial experts caution against purchasing a home simply as an investment. Historically, real estate market increases have been slow and steady, not the meteoric spikes seen between 1998 and 2008, when the economy buckled. Some experts like to point out that while housing prices and declines are cyclical, the stock market, on the other hand, had generated average annual returns of between 8 and 10 percent pretty steadily for decades. While those stock market gains may be less secure now, even conservative money planners try to deliver 5 to 7 percent returns, which is better than home value increases in many U.S. housing markets.

Is renting cheaper?

This is not an inconsequential question. Whether renting or buying is more cost effective depends on your market, where you choose to live and whether you like to do home improvement and maintenance projects yourself.

Homes cost money: Appliances break, roofs leak, and if you own, you are the lucky soul who gets to pay the bill. If you are renting, landlords pay the plumber and roofer.

That is why many homeowners who have taken out a mortgage in order to buy do so in anticipation of the tax breaks that come with homeownership. Depending on your tax bracket, a first-time purchaser's 1040 tax deductions can heavily subsidize many of the expenses you have poured into your new home.

Also, since a 30-year fixed mortgage comes with an amortization schedule with the highest interest payments coming in the first years of the loan repayment, mortgage holders have been able to claim deductions in the early stages of ownership.Free%20Mortgage%20Loan%20Product%20Calculation%20and%20Scenario%20M...

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The right mortgage can save you thousands of dollars, while the wrong mortgage could possibly put your house in jeopardy. With all the mortgage products available and the market in a state of fluctuation, it is more important than ever to understand real estate financing.

Making Sense of Mortgage Options

Start by simply understanding your options. People with average credit ratings or better should be able to secure a fixed mortgage for a traditional 30 year term. This essentially means you pay the same mortgage payment monthly for the entire loan period. Alternatively, you also have the option of choosing a 1, 5, or 10 year Adjustable Rate Mortgage (ARM). These mortgages adjust to the market rate after 1, 5, or 10 years. This could be up or down, depending on how interest rates move. Essentially, this means you could either be paying more or less when your rate lock period ends. Rates traditionally don’t move significantly, so don’t expect any major surprises. However, over the course of a 30 year loan rates could change significantly.

People without credit or with troubled credit should expect higher rates on these standard products. Additionally, you may have to reach into the subprime lending market. These loans typically have much higher interest rates and a variety of different structure. Importantly, when evaluating these loans, ensure there is no penalty for prepayment. Your major goal should be to pay off these loans as soon as possible or refinance to a lower interest rate when your credit improves. EVOLVE BANK & TRUST DOES NOT PARTICIPATE IN THE LENDING OF SUBPRIME MORTGAGE LOANS.

Many other products exist. Options such as reverse amortization and interest only offer a variety of payment terms, while increasing the cost (and sometimes the risk) to the buyer. Unless you have alternative investments, traditional mortgages provide the best option for purchasing a home. Regardless of the mortgage you choose, understand the payment schedule, fees, penalties, and ways the interest rate can be adjusted. Always remember that it is in everyone’s best interest for you to pay off your loan on time.

The Down Payment and the Interest Rate

The two most important parts of the mortgage are the down payment and the interest rate. There are two schools of thought when it comes to paying down a mortgage. Some people suggest paying down your mortgage as soon as possible, while others suggest making minimum payments to maximize your tax advantage. Bottom line, if you are an active investor (401k, real estate, stocks, etc.) it is probably best to pay as little down as possible. If you have good credit, try getting a 100% mortgage. While you will have to pay a higher interest rate, the cost of borrowing for your personal home will be cheaper than the returns you can get from investing.

In contrast, if you are not an active investor, your mortgage can make a reasonable investment vehicle. When most savings accounts offer 2.5% to 4% interest, it makes more sense to pay off your mortgage that charges 6.5% to 7.5%. You are essentially saving about 1.5% on every dollar you repay. The only short coming of this investment strategy is the lack of compounding you would receive with a traditional investment. If you are still young (18-55), consider a tax deferred IRA. You get similar tax benefits, plus a return that can be compounded, basically leaving you more money in the long run.

Understand that everything in this process is negotiable. Your goal should be to minimize the down payment and the interest rate. Typically, the higher the down payment the lower the interest rate and vice versa. Shop around using a mortgage broker to save yourself some time and legwork.

Finally, decide on the right mortgage for you. You should be able to comfortably make the payments and have enough in savings to cover at least three months of payments. This provides a buffer in case of layoff or any other possible tragedy that might occur during the home-ownership. Additionally, make sure you get to know your loan officer. A good relationship with your banker could save your house. Banks can be far more flexible than most people think. Again, banks do not want to foreclose on houses because it cost them far more money than they make. While a mortgage is simply a tool to purchase a house, managing this tool properly can save you thousands.Click Link to she how much you are able to buy today for free---                 https://www.evolvelpo.com/nathaniel-lespade

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