Wednesday, August 17, 2011

When Rent Payments Equal Mortgage Payments

To buy a house or not to buy a house…that is the question -- To pay rent or own a home. Owning a home is one of the most significant financial decisions many people will make. It is important to look at both the advantages and the drawbacks to know what to expect.
 Home prices are at such historic lows that today most people can own a home for the same monthly payment as their current rent.  Let's look at an example:  Using a USDA loan which allows for 100% financing (no down payment) the total monthly payment including principle, interest, taxes and insurance on a home purchased for $195,000 at 5% interest would be $1315.94 (APR 5.161) With rents in some areas ranging from $1350 to $1500 per month, home ownership is very competitive.
 There is more than just the payment to consider.  On the positive side, the investment potential is great.  Home purchasers are acquiring homes at low prices knowing that the market will cycle and their investment will gain equity.  The homeowner knows that their payment will basically stay the same over the years with a 30 year fixed mortgage with only slight increases for insurance and taxes.  Currently, home interest and taxes provide a large deduction on personal income taxes for home buyers. Lastly, you are purchasing a home you can make your own.
 It is important to note that there are extra costs to home ownership.  At the time you close your loan, you will have closing expenses that include escrow, title insurance, taxes and homeowners insurance just to name a few.  Closing can cost from $3000 to $6000 depending on the loan size and home value.
 Also, a new home buyer should have money in savings for emergency repairs and costs to improve the property.  Many homeowners opt for a home warranty policy at time of close which warrants the appliances, etc. for one year  allowing time to add to a savings account for future improvements. Effectively, the new home buyer becomes his own landlord in that he is responsible to fix any item that breaks or as an example, replace carpeting if desired. 
 It is important to seek the advice of a professional when considering the decision to buy a home.  Make an educated choice whether to continue renting or to purchase a home based upon your total financial picture.
 Home ownership is part of the American dream and at today's low prices and low mortgage rates, that dream is possible for many more individuals.

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