Home Purchase Versus Renting Home For First Time Home Buyers

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Home Purchase Versus Renting Home For First Time Home Buyers

This BLOG On Home Purchase Versus Renting Home For First Time Home Buyers Was UPDATED And PUBLISHED On October 13th, 2019

Home Purchase Versus Renting
Gustan Cho Associates

There are many added benefits to a home purchase versus renting 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 Housing Payments 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 Is Required On Home Purchase Versus Renting 

How Much Is Required On Home Purchase Versus Renting

How Much Money Do I Need To Buy A Home? 

  • To qualify for aN FHA loan, buyers need 3.5% down payment
  • To qualify for Conventional Loans, 3% to 5% is required
  • 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 Eligibility
  • Good news is VA Loans does not have a minimum credit score requirement and there is no debt to income ratio caps
  • They are one of the 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, buyers need closing costs
  • Closing costs can be covered with sellers concessions or a lender credit
  • Renters need to come up with first month’s rent plus security deposit
  • Homebuyers do not have to worry about closing costs
  • This is because most home buyers get sellers concessions and/or lender credit to cover closing costs on a home purchase

Buying Home And Qualifying For Mortgage With Bad Credit

How to qualify for a mortgage with a bad credit when buying a home

Can I Get A Mortgage With Bad Credit?  

  • Yes
  • Homebuyers can qualify for an FHA loan which only requires a 580 Credit Score to qualify for a 3.5% down payment home purchase loan
  • HUD, the parent of FHA, allows borrowers with credit scores down to 500 FICO to qualify for FHA Loans
    • However, credit scores below 580 require 10% down payment per HUD Lending Guidelines
  • Borrowers can qualify for FHA Loans with outstanding unpaid collection accounts and charge off accounts
  • Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no overlays and do not require outstanding collections and charged-off accounts to be paid to qualify

Payment Shock From Renting To Owning New Home

What is Payment Shock From Renting To Owning New Home

How Much More Will My Mortgage Be On A Home Purchase Versus Renting?  

  • The amount home buyers will be paying on their new mortgage on a home purchase versus renting depends on how much home they get
  • Payment shock is the difference on what renters are paying for rent now versus how much their mortgage loan balance will be
  • It will also depend on factors such as property taxes and homeowners insurance
  • It also depends on whether a new home purchase is located in a flood plain
  • Flood insurance will be necessary for flood zones
  • Housing payments depends on whether the new home purchase has homeowners association dues

Considerations On Home Purchase Versus Renting

What are Considerations On Home Purchase Versus Renting

When thinking on a home purchase versus renting can often be rather difficult. This holds true especially for first time home buyers who never owned a home.

Here are some things home buyers should consider when thinking of a home purchase versus renting:

  • What is your lifestyle?
  • What is your financial situation
  • What are short term, intermediate, and long-term plans?
  • What are 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 buyers’ decisions when considering between a home purchase versus renting an apartment and/or home.

Financial Considerations On Home Purchase Versus Renting

What are Financial Considerations On 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 the money that a homeowner pays on their monthly mortgage payment will go towards paying down their mortgage loan balance
  • This will reduce and lower loan balance and homeowners will accumulate equity
  • If paying monthly rent, none of the rent payments will be an investment
  • Rent is nothing more than an expense

Bottom line is the following:

  • Monthly mortgage payment goes towards principal and interest
  • The monthly mortgage payment is considered an expense and none of it is an investment
  • As a homeowner, the chance of home appreciating is likely
  • A home purchase is an investment in real estate
  • As a renter, if the home appreciates, the landlord will raise the rent
  • Will not get any of rental money back when renters move out of the rental
  • This is because renters do not own their rented unit

Investment Considerations On A Home Purchase Versus Renting

What are 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 many 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 are considered one of the safest investments
    • As a homeowner, your home is probably most likely the single biggest investment you invest in your lifetime
    • As a homeowner, mortgage loan balance, or debt, will decrease and home will appreciate over time
    • As you do home improvements like modernizing your homes such as basement remodeling, attic remodeling, or room additions, the value of the home will increase
  • Renting Is An Expense:
    • Renters never see their monthly rental payments ever again once it is given to their landlord every month
  • Pride Of Ownership. 
    • A Home Purchase Versus Renting a home is an investment versus an expense
    • Homeowners 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 after the 30-year term, 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 Remain The Same: 
    • Homeowners with a 30-year fixed-rate mortgage, monthly mortgage payments will remain the same over the 30 year period
    • The only changes will be property taxes and insurance
    • However, as a renter, landlord or property management company will increase rent every time  renters renew their lease
  • Income Tax Deductions. 
    • Rental payments are not tax-deductible
    • However, one of the greatest benefits as a homeowner is they can deduct the interest of their mortgage loan payments as well as their property taxes from their income taxes

Greatest Benefit To Becoming A Homeowner

What are Greatest Benefit To Becoming A Homeowner

Adopting a puppy and/or dog is one of the greatest benefits of becoming a homeowner. Many landlords may allow a pet cat but not dogs. As a homeowner, you can adopt a dog, man’s best friend. Being a dog owner is one of the greatest gifts in life. Many renters who become first-time homeowners purchase a dog as soon as they get settled in their home purchase.

Become A Homeowner And Contact Us

How Become A Homeowner

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 text for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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