Rent VS. Buy
The U.S. Department of Housing and Urban Development says it best: “A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes.
“This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years.
“Finally, you’ll enjoy having something that’s all yours—a home where your own personal style will tell the world who you are.”
As you can see from this table, there are many benefits to buying a home, even beyond the simple financial considerations.
Renting vs. Owning
|No ownership||Pride of ownership|
|Limited privacy||Complete privacy|
|No financial foundation||Financial foundation for your family’s future|
|No tax benefit||Tax deductible interest payment|
|You’re paying the owner’s mortgage||You build home equity over time|
Knowing the benefits you’ll enjoy, you should ask yourself a few questions before you begin the exciting process of home buying:
1) Do you plan to live in your home for 3 years?
The importance of your answer may surprise you. If you are willing to make as little as a 36-month commitment, you will be able to build equity and see a return on your investment. Otherwise, in the short term, you risk losing money because of costs involved in buying and selling a house.
2) When should I get qualified to purchase a home?
You must qualify for the mortgage and the home must also qualify for the mortgage. The #1 mistake made by home buyers is to see a realtor first and have a realtor tell them how much home they can purchase. A good realtor will refer borrowers back to a mortgage professional to get “pre-qualified” or “pre-approved.”
3) How much house can I afford?
This is a function of down payment, credit history, income, and comfort level. A mortgage calculator designed for this purpose should help give you a better idea of how much of a mortgage you can afford to pay on.
4) Which is better: pre-qualified or pre-approved?
Pre-qualification can be done in as little as five minutes on the telephone or internet. This is only as good as the accuracy of the information, and the integrity of the person giving it.
Pre-approved means an application has been completed. The information on the application has been documented, reviewed, and some form of underwriting has been done. This is part A of the process. At this point, the home needs to qualify for the mortgage. Pre-approval will make your offer stronger.