I want to briefly summarize why it is better to buy a home (especially today) instead of renting one! Listed here are 3 major reasons why you should consider buying a home...
Buying a home is actually less expensive than renting! Hereís whyÖ
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 letís 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 $8,000 First Time Home Buyer Tax Credit (2009). That means if you havenít owned a home in the past 3 years you can get an additional $8,000 from the Government just for buying a home in 2009!
That means you can get ($8,000 + $6,000 =) $14,000 cash when you buy your home over the next 5 years. So you will pay $60,000 is housing payments over the next 5 years but if you own a home you will get $14,000 cash back. This means you only spend $46,000 for housing over the same 5 years which is only $766.67/month!
Dollar for dollar it is cheaper to buy a home instead of rent one.
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.) If you are renting then the landlord is the owner and they get to keep the equity in the home.
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 itís making them richer!
Every time there is a repair on the home, if done correctly, that repair can increase the value of your home because it will be worth more. If you upgrade old windows, replace the shingles on the roof or remodel the kitchen, that will make your home worth more money. When you own a home you have to pay for these repairs. When you rent, the landlord must pay for these repairs but they donít mind because it makes the home worth more money!
Making regular payments on a home mortgage will increase your credit score. Better credit means better financing for your next home purchase, a refinance of the first home and for a vehicle purchase or any other credit purchases saving you thousands of dollars in interest over the years to come.
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 $200,000 that are now selling at $150,000 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. You can buy a home that used to be worth $200,000 for only $150,000. Then, as the market cycles back up you will be able to capture the new equity in your home.
With interest rates dropping below 5.5% (30 year fixed rate) you could buy that $150,000 home for payments starting at only $825/month (principle and interest)! And thatís before you figure your $14,000 savings over the next 5 years.
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 Ĺ% of the purchase price. This amount is nearly the same as first & last monthís rent and a security deposit. One of the little known ďbonusesĒ for buying a house is that you essentially get the first month FREE! The reason is because the homeís mortgage interest is charged at the end of the month while rent is charged at the beginning of each month.
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. You also need to be making at least 3-4 times your payment on a monthly basis. So if your mortgage payment is going to be $1,000/mo then you need to be making $3,000/mo or more (as a household) to qualify to buy the home.
Khayyam Jones is a real estate investor and Realtor in the State of Utah. He specializes in distressed property investments including fixer-uppers, foreclosure/short sales, and small infill development.
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