Cost Of Home Ownership Versus Its Benefits And Rewards

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Cost Of Home Ownership Versus Its Benefits And Rewards

This BLOG On Cost Of Home Ownership Versus Its Benefits And Rewards Was Written By Alex Carlucci of Gustan Cho Associates

Owning your own home is still the American Dream for most Americans. 

  • The advantages of being a home owner far surpass being a renter
  • However, there is the cost of home ownership that first time home buyers need to consider before they pull the plug in being a homeowner versus a renter
  • Home ownership offers many benefits such as the following:
    • the pride of being a homeowner
    • likelihood of home appreciation
    • building equity
    • security of being able to stay in home without being told what to do by landlord
    • landlord not renewing lease and needing to move
    • being able to decorate home the way homeowner likes without getting landlord approval
    • being able to adopt pets without landlord approval and without putting up additional security deposits
    • not worrying about rental payment increasing year after year

The Cost Of Home Ownership Versus Paying Rent

Many times, new mortgage payments as a homeowner may even be less than current rental payment renters pay:

  • Real estate market is hot throughout the country
  • In some areas, housing prices are appreciating by 10% every year
  • This holds true especially in many counties throughout the United States such as in California, Texas, Florida, Georgia, Colorado, Illinois, New Jersey, Michigan, Pennsylvania 
  • Homeowners who purchased their home several years ago are sitting on equity in their homes
  • Their homes are still appreciating with no sign of correction
  • A home is an investment where owners can enjoy their investment and still get an appreciating asset

How Much Do I Need To Become A Homeowner?

There are two types of costs a home buyer needs to come up with to purchase a home.

  • The down payment and closing costs
  • For FHA Loans, buyers need a minimum of 3.5% down payment to purchase a home with a FHA Loan
  • The down payment on FHA Home Loans can be 100% gifted by a family member
  • Most home buyers do not have to worry about closing costs
  • This is because a realtor can negotiate that the closing costs be paid by the home seller with a sellers concession towards a home buyer’s closing costs
  • In the event if the home seller will only give a limited amount or no sellers concessions, lenders can offer lender’s credit towards closing costs
  • Fannie Mae has reinstituted the 3% down payment conventional loan program for first time home buyers
  • The reason Fannie Mae institute the 3% down payment conventional loan program for first time home buyers is to compete with FHA’s 3.5% down payment requirement
  • First time home buyers with at least a 620 FICO credit score can now qualify for a 3% down payment conventional loan on a home purchase.
  • VA Loans and USDA Loans do not require any down payment on a home purchase. 
  • With sellers concessions, home buyers who qualify for VA Loans and USDA Loans can become homeowners with zero dollars out of their pocket.

Are Reserves Required By Lenders

There are times where lenders will require reserves for mortgage loan applicants who have lower credit scores, no rental verification, poor credit, or short term on the job. Automated Underwriting System will state on AUS Findings if borrowers needs reserves. All manual underwriting need one month’s reserves. Reserves is one month’s principal, interest, taxes, insurance:

  • Reserves are one month of principal, interest, taxes, and insurance. 
  • Most mortgage loan applicants with credit scores higher than 620 will not be required to have reserves
  • However, reserves are recommended for all homeowners
  • Reserves is strongly recommended to all homeowners in the event if something needs fixing such as if the furnace goes out, air conditioning, or appliance breakdowns
  • For example, homeowners who live in states where there are severe weather during the winter months, what would they do if furnace breaks down during sub-zero weather? 
  • Homeowners would have to fix it and/or replace it right away
  • Replacing a furnace can run a couple of thousand of dollars
  • If heating system breaks down, need to have the furnace replaced as soon as possible or the pipes will freeze
  • How about if refrigerator or freezer breaks down and need to replace it? 
  • Many homeowners have separate freezers where they stock hundreds of dollars worth of perishable foods
  • Replacing refrigerators and freezers are high ticket items
  • There are costs of home ownership and sometimes these costs can be quite expensive
  • Reserves are highly recommended even if lender does not require it

Other Cost Of Home Ownership

There are so many benefits of home ownership.

  • However, home buyers should keep the cost of home ownership in mind when buying a home
  • They should make sure that they do not buy too much house
  • The larger a home is, the more expenses there will be
  • Electric and gas prices are constantly going up year after year
  • Gas prices can cost several hundred dollars during the severe winter months
  • Electric bills can run extremely high during the hot summer months
  • The larger the home is, the higher the utility bills will be
  • There is also cost of maintenance such as lawn maintenance, snow plowing service during the winter months
  • There are instances and cases where appliances break down or HVAC systems malfunction
  • Homes will need short term as well as long term maintenance and homes do need repairs
  • Repairs can be minor repairs
  • Major repairs may be needed as well
  • A responsible homeowner should also set aside a portion of their monthly income into a homeowner’s repair fund

About The Author Alex Carlucci

Alex Carlucci is a contributing editor of Gustan Cho Associates Mortgage News. Alex Carlucci is also an expert consultant for Gustan Cho Associates and Senior Vice President of Mortgage Banking at Loan Cabin Inc. Alexander Carlucci has a national five star national reputation of its no overlays on government and conventional loans business model. Alex is available 7 days a week, evenings, weekends, and holidays and can be contacted at 630-915-7550.

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