Thursday, November 16, 2006

Renters Have Much to Gain by Pursuing Home Ownership

Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage consultants will agree. But the benefits of home ownership usually out weigh the potential challenges to making this part of the American dream a reality for renters. Purchasing a home is the first stage in creating long-term wealth and financial security; it is an achievement that offers a sense of pride and financial stability.

The numbers are staggering when you consider the following: If you are paying $1,000 per month for an apartment over the next five years you will pay your landlord $60,000 and if you are renting a house, you may be paying much more than that each month. Either way, you gain no equity by paying out this monthly housing expense and you certainly won’t benefit as the property increases in value.

However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you will have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you may have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage payment to go down.

In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage consultant should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to create the financing strategy that works best for you.

To find the loan program that is right for you, your mortgage consultant will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and which mortgage options can be made available to you. It is also important to let your mortgage consultant know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs.

There are many different types of loan programs available, including “low” and “no” down payment mortgage programs. These types of programs require the borrower to provide from zero to 3 percent of the purchase price as down payment. FHA lenders require that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income.

Regardless if you are renting or buying a home, housing expenses are a significant portion of your monthly budget. If you are renting and feel that “home” is more than just a place to hang your hat, think about the advantages of purchasing a home of your own.

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