Home Purchase Versus Renting

This BLOG On Home Purchase Versus Renting Was Written By Gustan Cho

There are many added benefits to a home purchase versus renting a home. Many first time home buyers are gun shy in considering in buying their home. Here are some of the common questions first time home buyers have on home purchase versus renting:

  • How Much Money Do I Need To Buy A Home?
  • Can I Get A Mortgage With Bad Credit?
  • How Much More Will My Mortgage Be On A Home Purchase Versus Renting

The three questions above are the most common first time home buyer questions and the answers are the following:

  • How Much Money Do I Need To Buy A Home? To qualify for a FHA Loan, you need 3.5% down payment and to qualify for a Conventional Loan, you need 3% to 5%. VA Loans and USDA Loans do not require a down payment on a home purchase. However, VA Loans are only limited to Veterans with a Certificate of Eligiblity but the good news is that VA Loans only require a 580 FICO credit score and there are no debt to income ratio requirements and are one of the most easiest home loans to qualify for. USDA Loans needs to be located in an area that the United States Department of Agriculture Rural Housing Development deems a Rural Development designated area.  On any home purchase, you need closing costs. Closing costs can be covered with sellers concessions or a lender credit. As a renter, you would need to come up with first month’s rent plus security deposit. Home buyers do not have to worry about closing costs because most home buyers get sellers concessions and/or lender credit to cover closing costs on a home purchase
  • Can I Get A Mortgage With Bad Credit?  Yes. Home buyers can qualify for a FHA Loan which only requires a 580 FICO Credit Score to qualify for a 3.5% down payment FHA home purchase loan. You can qualify for a FHA Loan with outstanding unpaid collection accounts and charge off accounts.
  • How Much More Will My Mortgage Be On A Home Purchase Versus Renting?  The amount you will be paying on your new mortgage on a home purchase versus renting depends on how much you are paying for rent now versus how much your mortgage loan balance will be. It will also depend on factors such as property taxes and homeowners insurance and depend on whether your new home purchase is located in a flood plain where flood insurance will be necessary as well as whether or not your new home purchase has homeowners association dues

Considerations You Should Consider On A Home Purchase Versus Renting

When thinking on a home purchase versus renting can often be rather difficult, especially when you are a first time home buyer and never were a homeowner.  Here are some things you should consider when thinking of a home purchase versus renting:

  • What is your lifestyle?
  • What is your financial situation
  •  What are your short term, intermediate, and long-term plans?
  • What is your career plans? Are you settled in your current job? Does your company want you to relocate? Does your current job offer stability?

All of the above factors need to be factored in your decision when considering between a home purchase versus renting an apartment a home.

Financial Considerations On A Home Purchase Versus Renting

There are many renters whose monthly rental payments they spend each month are equal or more then what their monthly mortgage payment would be.  One huge financial consideration renters need to consider is that part of money that a homeowner pays on their monthly mortgage payment will go towards paying down their mortgage loan balance. If you are paying monthly rent, none of your rent payments will be an investment and is nothing more than an expense. Bottom line is the following:

  • Your monthly mortgage payment goes towards principal and interest
  • Your monthly mortgage payment is considered an expense and none of it is an investment
  • As a homeowner, the chance of your home appreciating is likely. A home purchase is an investment in real estate
  • As a renter, if your home appreciates, your landlord will raise your rent
  • You will not get any of your rental money back when you move from your rental because you as a renter are not selling your home

Investment Considerations On A Home Purchase Versus Renting

A home purchase is considered an investment. A homeowner has the best of two worlds:

  • The benefit of being a homeowner
  • The benefit to enjoy and use their investment because owning a home is considered an investment

A Home Purchase Versus Renting offers much more advantages. Here are some of the great benefits of being a homeowner versus a renter:

  • Great Appreciation Potential:  A house is considered real estate. Real estate is considered long term investments. Historically, residential homes have increased and is considered one of the safest investments. As a homeowner, your home is probably most likely your single biggest investment you invest in your lifetime. As a homeowner, your mortgage loan balance, or debt, will decrease and your home will appreciate over time. As you do home improvements like modernize your home such as basement remodeling, attic remodeling, or room additions, the value of your home will increase
  • Renting Is An Expense: As a renter, you will never see your monthly rental payments ever again once it is given to your landlord every month
  • Pride Of Ownership. A Home Purchase Versus Renting a home is an investment versus an expense. You have an asset that appreciates over time. If you have a 30 year fixed rate mortgage loan on a $300,000 home purchase, not only are you going to have a free and clear home, the $300,000 home purchase may be worth substantially more after 30 years. As a renter, you do not have anything after 30 years of paying rent
  • Principal And Interest Remains The Same: If you have a 30 year fixed rate mortgage, your monthly mortgage payments will remain the same over the 30 year period. The only changes will be your property taxes and insurance. However, as a renter, your landlord or property management company will increase your rent every time your renew your lease
  • Income Tax Deductions. Rental payments are not tax deductible. However, one of the greatest benefits as a homeowner is that you can deduct your interest of your mortgage loan payments as well as your property taxes from you income taxes.

Become A Homeowner And Contact Us

Becoming a homeowner is not as difficult as many people think. It does not cost you a penny to see if you qualify for a home loan. If you are a renter and see if you can qualify for a home loan, contact us at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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