stay at home mom

Rent vs Buy

Should You Buy a Home, or Rent One?

Rent vs Buy. We are asked often in demographical surveys or credit card applications to check one of the following:
  • Homeowner
  • Renter
  • Mobile Home
  • Live with family
  • What business of theirs is it if we choose to rent vs buy our home?

    Is buying a home all its cracked up to be? Should EVERY American buy a home, ASAP? Let's examine this Rent verses Buy situation. Home ownership is excellent...if its right for you.

    Contrary to popular belief, it is not always the wisest option to own your own home. There are times when it is better to rent vs buy. Why? There are several reasons families choose to rent vs buy. Some people actually are better off, financially, renting.

    The South Florida Problem

    For example, in the past, I lived in South Florida. I don't know if you are aware of this, but over the past few years, this state has experienced a few hurricanes.

    Consequently, the homeowner's insurance rates have doubled, tripled, or even quadrupled what it was a few years ago. The State of Florida is trying to "fix" the problem, but it could take years to see results.

    Also, in this area, housing prices have skyrocketed! A house purchased in 1992 for $90,000 has a sticker price of over $350,000 now. Sounds like a big reason to be a homeowner, right?

    Well, consider what is happening to a number of our senior citizens. Their homes are completely paid off, and they are living on a fixed budget.

    They were doing fine, living in their home from month to month, paying their bills on time, but then,things changed. Since the hurricanes have come, they now have to come up with an extra $6000 (or more) each year, in homeowner's insurance, or they need to drop the policy altogether, and risk the next storm.

    Add to that the fact that their property tax has also doubled, or tripled, (due to home value increase) and their fixed budget, which has not increased, cannot even begin to cover it. So what is happening right now? Our seniors are having to sell their homes because they cannot afford them, even though they are not carrying a mortgage.

    It is a very sad situation. Yes, in the last 24 months, those skyrocketed prices have come crashing down, but the property insurance and property taxes have not yet. Add to that the fact that this is now affecting more than just seniors; regular families who purchased in the last couple years are stuck in their homes, upside down now in their payments, and things just keep getting worse. Families are unable to sell their homes and move to a lesser expensive area, because there are no buyers.

    Other Reasons to Rent

    But there are other reasons where it might not be a good idea to buy a home. If you are living paycheck to paycheck, you should not even consider buying a home. Check out this Financial Calculator here, which will tell you if you should buy a home, or continue to rent.

    You simply plug in information about how much it costs for you to rent, how much a home in your area would cost, what kind of interest rate you would probably get, and how long you would probably keep the home. It also figures in things like your current tax bracket, and how much interest you would get on invested money. Very interesting calculator!

    The Joneses'

    Do not feel that you need to "Keep up with the Joneses". You do not owe your children a home that you are barely affording, you owe them love. What happens when you purchase a home when you are not ready? Let's say that you answer one of those "0 down! 100% financing available!" ads.

    You buy a modest $200,000 four-bedroom, three-bath, three-car-garage with basement, two-year old home. The house is beautiful! And best of all, on paper, you can afford it! Sure you'll be cutting back on groceries, but it would be worth it, right?

    Remember, you look good on paper, but maybe you're living paycheck to paycheck. When you rearrange your financial obligations, you may be able come up with the extra $500 a month difference between your rent payments and the mortgage/homeowner's insurance/property taxes payment.

    But have you taken into consideration maintenance, higher cost of heating/electricity, things like the lawn, homeowner's association fees, or any of the other extra costs associated with owning a home?

    Have you put into practice living without that extra $500 a month difference? It may seem like you can do it, but who knows! And what happens if your husband loses his job? Make sure you practice living for 6+ months on less money BEFORE you take the plunge and purchase a home.

    Home Buying Resources

    But, if buying a home is right for you, I would highly suggest you read this site from top to bottom:

    FHA/HUD

    This site is an excellent resource from the government, which will walk you through the home buying process and may even help you to answer the Rent vs Buy question for yourself.

    From figuring out how much home you can afford, to shopping for lenders, HUD is here to help.

    Saving for a House

    And please, take the time to properly save up a 5-10% down payment. Put your money into a high-interest savings like this one at ING Direct: Earn a high percentage yield with the Orange Savings Account - No Fees, No Minimums & No need to change banks! FDIC Insured. while you are saving up. Even if you rent vs buy a house, store your savings in an Orange account for interest rates much better than your local bank can match. Then later you can use the money to buy a house and experience home ownership!

    Click here to start saving with ING DIRECT!



    Did you know that the word Mortgage means "Death Pledge"? nvestigate a 15 or 20 year mortgage instead of the most common 30 year mortgage. You usually get a better interest rate with a 15 year mortgage, and for an extra $100-200 per month, can cut your death pledge in half!

    Mortgages

    Find out the best mortgage for you. Do not become convinced that an ARM (Adjustable Rate Mortgage) is the best mortgage for you, because a banker or broker has told you so.

    Generally, you will only want an ARM if you are going to be in the house for just a couple of years. NEVER use it when you plan to stay in your home for the rest of your life; interest rates are going up! You will find yourself unable to afford your own home.

    For a calculator showing you when it is a good idea to use an ARM, Adjustable Rate Mortgage Calculator. Want to buy a home without a mortgage? Don't have a few hundred thousand dollars sitting around gathering dust?

    Well, then this may be of interest to you.


    Mortgage Free: Radical Strategies for Home Ownership by Rob Roy



    This book teaches you how to own your own home without a bank's assistance. The ideas he gives are radical, like the title implies, but it is a refreshing and imaginative solution to a common problem.

    If nothing else, it is an entertaining read. The ultimate Rent vs Buy equation! It may even change your life!

    Advice:

    If you already own a home, or find that it is in your best interest to purchase one, I strongly caution you to heed this one piece of advice:


    YOUR HOUSE IS NOT AN ATM

    You will be tempted with offers to consolidate your credit cards into a 2nd mortgage, or take out a home equity loan for a vacation, a car, or even home improvements.

    You will be told that it is in your best interest, because of the tax benefits, but don’t fall for it. It is one of the worst possible debt traps you can ever fall into.

    What happens when the value of your home drops, as several markets across the US are now experiencing? It's bad enough being upside-down on your car loan, but to owe more on your mortgage for your home, than your home is actually worth, would be a terrible, and inescapable trap.

    The Rent vs Buy question can be a difficult one. Just make sure that you answer it with what is best for your situation, and do not feel that if you rent vs buy a house, it is a bad thing.



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