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Should I Rent or Buy?

Should I Rent or Buy?

June 14th, 2018 | Purchasing a Home

While homeownership has long been the American dream, buying a home is not necessarily the best choice for every person or every situation. There are many factors to consider in determining if a home purchase is the right decision for you right now.

Can you Afford It?

If the cost to own a home – mortgage, homeowners insurance and property taxes included – if less than roughly 28% of your gross income and you have few other debt obligations, you can probably afford to buy. Do not underestimate the additional costs of maintenance though. Replacing appliances or paying for a plumber can happen more often than you expect and can eat into your budget quickly. Experts suggest setting aside at least 1% of your home value each year for needed repairs and maintenance.

You will also need to factor in your credit score, the size of your down payment and the interest rate lenders are likely to offer you.

Are Interest Rates in Your Favor?

Mortgage interest rates have varied widely over the last half century. In recent years they have been at or near record lows but are starting to rise again. The difference of just a single percentage point in your mortgage interest rate can mean the difference of tens of thousands of dollars in interest. If current rates are higher than you would like, you have the possibility of paying down the rate by with an upfront fee.

How Long Will You Stay?

Buying typically makes more sense the longer you plan to stay in that home. The closing costs, origination fees and appraisals associated with a mortgage will be more cost effective if you stay in the home for a decade or more versus just a few years. In fact, if you plan to sell within two years of buying, renting is probably a smarter option.  On top of the out-of-pocket home loan origination fees, you might also have to pay capital gains taxes.

Additionally, in markets where the average home price is significantly higher than the national average it may take longer for the benefits of homeownership to pay off because of the larger initial cost, but those homes also usually see stronger and faster price appreciation. 

Which Situation is Better for Your Taxes?

Until 2018, all mortgage interest and private mortgage insurance premiums were tax deductible. 
Now buyers are allowed to deduct interest on the first $750,000 of a mortgage loan and can only deduct up to $10,000 (including property taxes) in state and local taxes.  And for those unaffected by those tax changes, the tax deductions are less attractive anyway since the standard deductions have been almost doubled, reducing the need to itemize taxes at all for many homeowners.

Buying your own home can be very rewarding as long as the numbers add up and the timing is right. Renting can also be a great option for saving money and having the freedom to move more often. If you desire to buy, making sure you can afford homeownership and that you understand the associated responsibilities and financial consequences will help you realize your dream the smart way.

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Holmgren and Associates

DBA of Finance of America
1900 Mountain Boulevard
Oakland, California 94611
Phone: 510-339-2121
NMLS 0910184/1071
 

Holmgren & Associates is a branch of Finance of America. We are a full service mortgage banker with an experienced staff offering expertise in residential mortgage lending, with primary focus on loans for home purchase, refinance, and reverse mortgages.

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This is not a commitment to lend. Prices, guidelines and minimum requirements are subject to change without notice. Some products may not be available in all states.  Subject to review of credit and/or collateral; not all applicants will qualify for financing. It is important to make an informed decision when selecting and using a loan product; make sure to compare loan types when making a financing decision.  Any materials were not provided by HUD or FHA. It has not been approved by FHA or any Government Agency.  A preapproval is not a loan approval, rate lock, guarantee or commitment to lend. An underwriter must review and approve a complete loan application after you are preapproved in order to obtain financing.  Questions, comments, concerns? Send to customerrelations@financeofamerica.com