By Mary Dalrymple
Provided By The Motley Fool Green Light
Home prices, mortgage rates, and housing bubbles have gotten their fair share of print in the news lately. If you're a renter wondering whether to take the leap into homeownership, it may all seem a little overwhelming.
When considering whether it's better to remain a renter and let your landlord fix the plumbing leaks, your area's real estate market should be one consideration. But it's not the only one, and it may not be the most important one. Here are some things to ask yourself when considering whether to become a homeowner.
Will you remain in the house for more than a few years?
Housing prices have definitely skyrocketed in many regions, but that doesn't mean they'll stay on that path forever. A few areas have seen prices starting to decline. That can be great when you're the buyer, but not necessarily when you're the owner.
You'll want to stay in your home long enough to at least recoup your buying costs. If you know you'll move in fewer than three years, your house may not have appreciated enough to cover those expenses. You may want to plan on staying at least three to five years to give yourself more time to cover your costs.
How does it compare with renting?
When renting, it's easy to calculate whether a new apartment will fit in your budget. Just ask about the monthly rent and the average utilities. Once you start thinking about buying a home, this calculation gets a lot more complicated.
Luckily, there's a handy Motley Fool calculator that will tell you whether you're better off renting. As you'll see from the questions the calculator asks, this equation depends on the expected appreciation of your home, your tax rate, your mortgage interest rate, your homeowners' insurance, and your property taxes, to name a few things.
What else would you do with the money?
If you purchase a home, you may shell out more each month for your housing costs. That doesn't mean it's better to remain a renter. You're likely to get a discount on some of those costs, including mortgage interest and property taxes, through various tax deductions.
Also, your mortgage payments won't climb every year with inflation, the way your rent can. (Unfortunately, the same can't always be said of your property taxes.) When you pay your mortgage each month, you're building equity in your house. When you pay your landlord each month -- and he keeps raising the rent -- you're not gaining anything but the same old apartment, for more money.
On the other hand, homes require some upkeep and maintenance, which can get expensive. Depending on the real estate market in your area, you may find no advantages to buying a house. Maybe you're better off investing your money and improving your financial situation through stock ownership, instead of real estate.
Can you place a down payment?
To get the best mortgage arrangement, you'll want to be able to put down 20% of the purchase price of the home. You can get a multitude of arrangements that let you avoid that down payment, but some can be costly. You'll either have to pay private mortgage insurance to protect the lender in the event that you default, or you'll need a second loan that will probably come at a higher interest rate.
There are many programs around to help people, especially first-time homebuyers, who cannot put down the traditional 20% down payment. You may qualify for one of these arrangements. In the meantime, consider whether you'd rather rent longer and save more money toward a down payment.
How do you feel about homeownership?
Some people cannot wait to paint the white picket fence and plant daisies, while others dread the idea of doing their own maintenance chores. If you know exactly where you stand on that question, there may be no debate about whether you should keep renting or start home-hunting.
Copyrighted, The Motley Fool. All rights reserved.
Showing posts with label Renting. Show all posts
Showing posts with label Renting. Show all posts
Monday, February 22, 2010
Friday, February 13, 2009
Making the Transition from Renting to Buying
Here are a few points to consider as you weigh the pros and cons of home ownership.
No doubt you've thought of how nice it would be not to write a rent check every month, but have you done the math? Nothing can make you feel more secure than owning your own house, unless buying a home will create financial problems of its own. Here's a discussion of the most important financial costs associated with home buying to stack up against your monthly rent check.
Instead of the standard deduction on your income tax return, most homeowners itemize their deductions, allowing them to deduct the following (and save on taxes): home mortgage interest, property real estate taxes, state income taxes, gifts to charity, medical and dental expenses over 7.5% of your income, personal property taxes, and most moving expenses.
Figure your monthly payments if you were to buy. Compare your monthly rent to a calculation of the following: purchase price and down payment of your home, your annual income (and debt!), property tax rate, home insurance rate, interest rate and length of loan. For best results, contact a home-buying specialist.
Other Costs
Expect other costs to homeowning. Along with your monthly mortgage and down payment, there's property tax and homeowners insurance premiums, and fees known as "closing costs." These include everything from a credit check to "points"- interest paid up-front in return for a lower interest rate. Others: title insurance fee, survey charge, attorney/escrow fees, and loan origination. So do your research!
Long-Term Equity
No discussion of home ownership is complete without considering the long-term benefits of owning. What your house will be worth when you sell depends on the state of your mortgage and the housing market, in particular. Consult with real estate professionals, read up, and do your math to get a realistic sense of your future home value.
Lifestyle and Mobility
Mobility is part of renting. Freedom to take the next job or move for a relationship is easy to come by when you rent a home. And when you do move, there's often more choice of specific location, and price, when you seek rental housing. Want an apartment near a park in western Philadelphia? You may find an easier time looking to rent than buy.
Many renters say they love knowing they're not tied down - and don't have to assume financial responsibility for their living space. This is of course a big difference from home ownership: who does the work.
Who Does the Work?
While you don't receive the joys of making a place truly "your own," you do have limited costs in renting. Landlords are responsible for general upkeep and safety, allowing you to focus on the fine points. Homeowning, in contrast, puts you in the driver's seat. You shoulder the expenses and reap the rewards of home improvement - both great and small. Think about whether you want to put in additional time and money.
Choices, Choices!
Whether you decide to take the step of home ownership is a personal choice with its own ups and downs. Hopefully we've helped dust off the magic ball a bit; what you see in your future is up to you!
Copyright © by Move, Inc.
No doubt you've thought of how nice it would be not to write a rent check every month, but have you done the math? Nothing can make you feel more secure than owning your own house, unless buying a home will create financial problems of its own. Here's a discussion of the most important financial costs associated with home buying to stack up against your monthly rent check.
Instead of the standard deduction on your income tax return, most homeowners itemize their deductions, allowing them to deduct the following (and save on taxes): home mortgage interest, property real estate taxes, state income taxes, gifts to charity, medical and dental expenses over 7.5% of your income, personal property taxes, and most moving expenses.
Figure your monthly payments if you were to buy. Compare your monthly rent to a calculation of the following: purchase price and down payment of your home, your annual income (and debt!), property tax rate, home insurance rate, interest rate and length of loan. For best results, contact a home-buying specialist.
Other Costs
Expect other costs to homeowning. Along with your monthly mortgage and down payment, there's property tax and homeowners insurance premiums, and fees known as "closing costs." These include everything from a credit check to "points"- interest paid up-front in return for a lower interest rate. Others: title insurance fee, survey charge, attorney/escrow fees, and loan origination. So do your research!
Long-Term Equity
No discussion of home ownership is complete without considering the long-term benefits of owning. What your house will be worth when you sell depends on the state of your mortgage and the housing market, in particular. Consult with real estate professionals, read up, and do your math to get a realistic sense of your future home value.
Lifestyle and Mobility
Mobility is part of renting. Freedom to take the next job or move for a relationship is easy to come by when you rent a home. And when you do move, there's often more choice of specific location, and price, when you seek rental housing. Want an apartment near a park in western Philadelphia? You may find an easier time looking to rent than buy.
Many renters say they love knowing they're not tied down - and don't have to assume financial responsibility for their living space. This is of course a big difference from home ownership: who does the work.
Who Does the Work?
While you don't receive the joys of making a place truly "your own," you do have limited costs in renting. Landlords are responsible for general upkeep and safety, allowing you to focus on the fine points. Homeowning, in contrast, puts you in the driver's seat. You shoulder the expenses and reap the rewards of home improvement - both great and small. Think about whether you want to put in additional time and money.
Choices, Choices!
Whether you decide to take the step of home ownership is a personal choice with its own ups and downs. Hopefully we've helped dust off the magic ball a bit; what you see in your future is up to you!
Copyright © by Move, Inc.
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