If you have been renting your home for a while, it may be time to leap to homeownership. There are many homeowner benefits, but before you spring into action, there are also many factors to consider.
Harold Perkins, president and managing member, Galaxy Lending Group, a Rosie-Certified Partner, takes us through the pros and cons of renting vs. buying.
“It’s actually not as simple as renting vs. buying,” he said. “You need to take your lifestyle and the money you want to accumulate over the years into consideration.”
Homeownership has been the top American dream for generations. But it’s not right for everyone.
- Tax advantages. Many of the costs of homeownership are tax-deductible. While you are paying off the mortgage, the mortgage interest will count as a deduction on your tax return.
- Make money on your investment. Renting is not an investment. Over time, your home will likely increase in value. That equity is money in your pocket.
- Remodel & Renovate. You don’t need permission to paint the walls Pepto Bismol pink or pull up the carpet to reveal hardwood floors. This is your house (well, technically the lender’s until it’s paid off) and you can do what you want, within city code and HOA guidelines, of course.
- Privacy, please. If you buy a single-family home, you should expect more privacy.
- Increased expenses. One of the biggest costs of homeownership is the monthly mortgage payment, which includes the loan’s principal and interest. Your payments can go up or down if your loan is variable-rate or your property taxes or homeowners insurance premiums change.Homeowners insurance costs much more than renter’s insurance. Plus, there is the mortgage insurance for the actual structure, not just the contents, property taxes, higher utility bills, maintenance costs, and possible flood policy and HOA fees.
- Down Payment — The days of zero down are over! Expect to pay three percent to 20 percent of the home’s purchase price off the bat. If you put less than 20 percent down, your lender will likely require you to purchase private mortgage insurance (PMI), which increases the mortgage payment.
- Can’t just get up and go. What if you suddenly need to relocate for a job or family matter? You can’t just give a month’s notice to the landlord and move out. Are you going to sell the house or rent it out? Either way, it’s going to take time to coordinate.
- Maintenance: If the toilet clogs or a pipe bursts, grab the plunger and towels. As a homeowner, it’s up to you to see that it gets fixed, whether you do it, or you hire someone.
- Not tied to a mortgage. Again, if you need to relocate, in most cases, all you need to do is provide a month’s notice, pack up and leave.
- Know your costs. When you rent, you know exactly how much you’re going to spend on housing each month.
- Maintenance is taken care of for you. Call to the landlord. Broken appliances, leaky faucets, and pest control are generally not your responsibility to fix or pay for, unless you caused the problem.
- Rent rates increase. Even if you take advantage of the “three-month free rent” promotion, inflation, competition among properties, and rising property values will cause your rent to increase each year. Do you want to move every year, chasing the best deal?
- The property can be sold. The owner can sell the property at any time, leaving you in a lurch.
- Zero financial incentives. There are no tax deductions, equity to earn, or rising property value. Once you pay the rent, that money is gone. It is not working for you.
- It’s not yours to live as you please. You have little say in what you can do in your rentals. Some landlords forbid pets, while others limit the species, size, and number while charging as high as $500 per pet deposit. You may not even be allowed to nail anything to the wall. There can be a lot of limitations in a rental.
The year 2020 showed us more differences in homeownership vs. renting.
Catherine Reagor, senior real estate reporter, the Arizona Republic, reported on January 3, 2021, “Despite the COVID-19 pandemic, metro Phoenix home prices increased faster than in any year since the housing boom, boosting many homeowners’ equity to the highest level since the crash.”
For the homeowners struggling to pay their mortgage during the pandemic, many received what Reagor described as relatively easy forbearance agreements with their lenders. We have found that some agreements are six months long, which has helped them keep their homes.
Additionally, homebuyers have been able to take advantage of record-low interest rates then quickly see their house appreciate. Conversely, as Reagor also noted, “most Phoenix-area renters saw their monthly payments climb as their incomes fell.”
Remember, homeownership it isn’t just about money. It is about the lifestyle you want and what makes the most sense for your situation.
If you decide homeownership is for you, there is an important first step you must take. Before you go house hunting, get pre-qualified for a mortgage, unless you are paying all-cash. Otherwise, it is pointless to look if you don’t know what you can afford.
Buying a house is a long-term commitment. Carefully consider these factors and your options.
SPONSORED BY: GALAXY LENDING GROUP
Galaxy Lending Groupprovides home loans and personalized mortgage counseling to Arizona, California, and Oregon residents looking for a reputable and responsible mortgage lender. With two decades of experience in residential lending, they can find you the right loan at the best rate — even in today’s tough economy. Their loan officers and support staff will help you choose the most sensible mortgage with the utmost confidence.