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SHOULD YOU BUY A HOUSE?
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AFFORDABILITY
5
MOTIVATION
6
BUYING A HOME
7
RENTING
10
BILLS
11
TIMELINE
12
CREDIT
13
OTHER CONSIDERATIONS
STNETNOC FO ELBAT
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SHOULD YOU BUY A HOUSE? Homeownership has been considered the American Dream for decades. When you weigh the pros and cons of owning a home, you will see that there are lifestyle and financial considerations.
Buying a home should be an individual and personal decision, rather than a market decision. It is an investment that you make emotionally and personally, as well as financially. In this booklet, we will examine the pros and cons of owning vs. renting a home.
“If you are going to have a real dream, you need a real plan.” It’s not enough to dream about being debtfree, you have to actually get there! Make a budget, pay off your debts, and get strategic about your future. Your dream will become a reality before you know it if you’re willing to put
Please feel free to contact one of our six offices
in the work.
along the coast for help with your real estate needs.
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- Chris Hogan
“The caliber of your future will be determined by the choices you make today.” Anthony O'Neal
AFFORDABILITY Rent vs. Buy Ratio There are many renting vs. buying
Ultimately you should determine your debt-
calculators online, but most compare
to-income ratio to help identify a wise
annual rents to asking prices. For example,
monthly investment. This number is used
there is a “rent vs. buy rule of 15.” This
by lenders to measure your ability to
formula multiplies the yearly rent of a
manage your monthly payments. To
comparable property by 15. (Example: If
calculate your debt-to-income ratio, add
rent is $1,000 a month, it’s $12,000
your monthly payments and divide them by
annually. Multiple that number by 15 and
your gross monthly income. (Gross monthly
you’ve got a suitable purchase price of
income is your total earnings before taxes
$180,000.)
and other deductions are taken out).
Trulia uses a “price-to-rent ratio” that follow
For example, if you have a $1500 a month
the same formula, whereby you take the
mortgage payment, plus a $100 car
list price and divide it by one year’s rent.
payment and an additional $400 a month
Using the example above, $180,000
for your remaining debts, your monthly
divided by $12,000 would be 15. Trulia
payments are $2000. ($1500 + $100 + $400 =
considers ratios of 1-15 as more favorable to
$2,000.) If your gross monthly income is
buy than rent, whereas numbers of 16 and
$6000, then your debt-to-income ratio is 33
higher support renting.
percent. ($2000 is 33% of $6000.)
N O I T A V I T O M FAMILY PLANNING If you’re ready to put down roots and start a family, consider buying property.
WRONG REASONS If you’re only buying because “it’s time” or you’re looking to get rich, keep renting.
Y E N O M
ADVANTAGES OF HOMEOWNERSHIP A Place of Your Own Pride of Ownership (Social Status,
BUYING
Accomplishment) You Make the Rules (Pets, Paint Colors, Etc.) You Can Build Home Equity and Wealth
Owning a home has been considered the American
Sizable Tax Deductions Possible
Dream for decades for many reasons. You’ll have a
Ability to Remodel, Expand and
place that is uniquely “yours” that you can
Tear Down
customize from paint colors to a remodeling project. Also, it may be a great way to build equity and provide security for you and your family.
Potentially Better for Children and Family Structure Mortgage Can Improve Your Credit History/Score Ability to Borrow Against Your
Overall, buying a home can be a good investment,
Home
but you need to remember you will be your own
Monthly Payments End Once the
landlord making you responsible for the
Mortgage is Paid
maintenance and upkeep of your home. You will
Fixed Payments (With A Fixed
also need to budget for home-related costs including utilities, homeowner association dues if any, homeowner insurance and property taxes.
DID YOU KNOW?
Mortgage) No Landlord Retirement Nest Egg
DISADVANTAGES OF HOMEOWNERSHIP More Responsibility and Liability
Inflation Hedge – Rates on 30-year fixed loan are
Home Prices May Lose Value
about 4% right now. That is a considerable incentive
Could Overpay for Your Property
to refinance an existing mortgage or to become a
Not Everyone Qualifies for a
first-time home buyer. As a renter, if future inflation pushes rents higher, you’ll be forced to pay more or to move into a less expensive home.
Mortgage You Must Pay Taxes and Homeowners Insurance Total Housing Payment Can Be More Expensive
Something most first-time homebuyers do not think
Sizable Down Payment May Be
about when deciding on renting or buying. When you
Necessary
outgrow your current home and are ready to move up,
Maintenance Costs Can Be
the equity built can be used as the down payment on
Excessive
the next house. If your children are attending a more expensive school than planned, the equity can also be used to pay tuition. You can utilize this asset for future expenses so consider it a forced savings plan.
HOA Dues (If Applicable) You’re in a Long-Term Commitment Transactional Costs of Buying and Selling Your Home Can Be Damaged or Destroyed You Can Lose Your Home Through Foreclosure
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Y E N O M
ed u n i t con
RENTING If it isn’t the right time to invest in a home, renting a home can be a good option. It’s a good idea if you are still saving for a down payment, working on repairing your credit score, you plan on moving shortly, or have other financial goals you value more than home ownership.
ADVANTAGES OF RENTING
DISADVANTAGES OF RENTING
May Be Cheaper Than a Mortgage Payment
Rules, Regulations, and Limitations
Fewer (If Any) Maintenance Costs
More Temporary, Less Stability
No Down Payment Required (Less Deposit)
Rental Payment May Exceed Monthly
No Real Estate Taxes (Renters Insurance
Mortgage Payment
Optional)
No Ownership or Wealth Creation
Freedom to Move or Downsize When
Payments Never End
Necessary
Rent May Rise in the Future
No Risk of Home Price Depreciation The Landlord May Pay Some Expenses May Include “Free” Amenities Such as a Pool, Gym and Security Leaving Your Funds Available to Invest in
You Walk Away with Nothing No Tax Benefits You’re at the Mercy of the Property Owner You’re Often Still Stuck in a Lease
Other Opportunities You Don’t Have to Worry About Foreclosure
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Could Be Forced to Move If Owner Sells
A comfortable house is a great source of happiness. Sydney Smith
R A B C # S E R A C
"To give real service you must add something which cannot be bought or measured with money, and that is sincerity and integrity." Don Alden Adams
S L L I B MORTGAGE When you pay off your home, it’s yours. You eliminate the expense of housing once you’ve paid it off. If the home appreciates more than you’ve paid in mortgage, interest, taxes, and maintenance over time, you’ve earned a return.
. s v
RENT PAYMENT
You have little control over how long you can stay there. Your landlord can force you out or raise prices at the end of your lease contract. In the end, you don’t own the home despite all those payments. There’s nothing to pass on to your children or to sell for a profit. Additionally, your rent can and will most likely rise. You may be paying less than your neighbor who has a mortgage today, but if your neighbor’s mortgage is fixed, they’ll still be paying the same amount in the future while your rent increases.
E N I L E M TI
An important factor that buyers often ignore when prices and interest are low is whether this house will still be a good idea several years down the road. If you or your spouse is a student or in a job that requires occasional relocation, you’ll have to think about whether your house will be an asset or a liability if you have to move within the next five years. Rule of Thumb: If you plan on being in the same home for more than 5-10 years, then it may be a good idea to buy. If you will only be in the home 35 years, then you might consider renting (the cost of selling the house may result in losing money if you live there fewer than five years). Also, think about how much home you need. If you know you are going to start a family, consider whether or not the home will still work once you hear the pitterpatter of little feet. Knowing what direction you’re heading will help you to decide if a house is a good investment for you in the long term. www.Alfonso.com
T I D E CR
Having a mortgage can help you build your credit, but you will never be approved for a mortgage if you have poor credit. The minimum credit score to get a mortgage is 580. However, many mortgage companies will not work with you until you achieve at least a 640. When renting, the qualification is not governed by law, so the minimum is whatever the landlord is willing to accept. Also, you may need a down payment that ranges from 5% to 20% depending on the lender’s guidelines and closing costs that you will need to bring to the closing table. Renters only have to come up with a maximum of a month or two of rent plus a security deposit.
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R E S H N T O O RATI E D I S N O C
Homeowner's Insurance: Protecting your investment comes at a higher price since you are ensuring the entire property. Renter’s insurance is much less as it only covers your personal belongings inside the dwelling. Private Mortgage Insurance (PMI): If you have less than 20% equity in your home you can expect to pay PMI. This amount typically ranges from 0.50% and 1.2% of your loan. For example, 1% on your $200,000 mortgage would add $200 to your monthly mortgage payment until you build up at least 20% equity in your home. (This is approximate. Contact a lender for an exact amount.) Property Taxes: These amounts range depending on which county you are in and whether or not you are within city or county limits. When renting this amount is usually paid by the landlord. Maintenance: Homeowners pay nearly $170 per month on average for regular maintenance and repairs. The average does not include larger items such as a roof repair, new HVAC system and other things that can run four or five figures.
Making Real Estate Dreams Come True Across the Coast BAY ST. LOUIS 1188 Highway 90 Bay St Louis, MS 39520 228.467.0244
GULFPORT 9153 Lorraine Road Gulfport, MS 39503 228.295.0262
BILOXI 1966 Popps Ferry Rd. Biloxi, MS 39532 228.207.2308
OCEAN SPRINGS 2003 Bienville Boulevard Ocean Springs, MS 39564 228.875.1272
DIAMONDHEAD 4300 Gex Road Diamondhead, MS 39525 228.255.3550
PASCAGOULA 934 Jackson Avenue Pascagoula, MS 39567 228.769.7777
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