Category: Home Ownership

Home Ownership Pros and Cons

home ownership advantagesOwning a house is very different from renting. Understanding some of the key benefits and drawbacks of buying a house can help you decide if this is the right approach for your family. From the amount of money needed upfront to annual tax savings and even maintenance costs, here are some of the home ownership advantages and disadvantages.

Home Ownership Advantages

Build Wealth: For most of us, our home is our largest investment and one that increases in value over time. When you purchase a home, you naturally build equity as you make improvements and pay off your mortgage.

Tax Savings: The property tax and interest you pay on a home you own is tax deductible. This can add up to significant savings for you each year at tax time. If you make green improvements to a home you own, you’ll not only reduce your carbon footprint, you’ll get additional deductions as well.

More Control: From the ability to paint your rooms whatever colors you like, have as many pets as you want and even decide if you want to upgrade your exterior, when you own the home, you have creative control. You also don’t have to worry about a landlord selling your home before you are ready to move.

Privacy: Perhaps you don’t like the idea of a nosy landlord. You may simply want your own space that you don’t have to answer to anyone else about (except the bank). Either way, owning a home is the right way to go.

Advantages of Renting

No Maintenance Costs: If the air conditioning breaks, the fridge stops working or there is a plumbing fail, you’re not responsible for the repair work.

Lower Upfront Cost: Depending on the mortgage product you are interested in, renting can be less expensive up front than buying. Some loans, including VA loans are equal or even less than the cost of renting.

Flexibility: That downtown location may have seemed like a great idea when you rented the house. But now, a year later, you’re ready to move on. As a renter, once your lease ends, you’re free to move. A house will have to be sold or rented out before you can move on.

Affordability: In some markets, you can get more house or space for your money when renting. Buying could result in a higher monthly payment.

Bundled Services: Some rental locations provide utilities and other services, from trash pick up to lawn care. These additional services can save you time and money.

Home ownership advantages at the right time will ensure that you can build wealth and thrive in a home you own. For some people, renting may be the best option for now. It’s a good idea to regularly review your personal needs and goals. This process can help you decide which model is best for you and help you make the best possible decision for yourself and your family.

Types of Mortgages – VA, ARM, Conventional

mortgage typesOne of the best long-term investments that you can ever make is buying a home. Those who own a home, and live in it for an extended length of time, will likely build more personal equity than those who choose to rent. When purchasing a home, it will likely require taking out a loan. Prior to purchasing a home, and taking out a mortgage, there are a variety of mortgage types to consider.

Mortgage Types To Consider

Fixed Versus Adjustable

The first factor that needs to be considered when applying for a loan is to decide whether you want a fixed or adjustable rate mortgage. Mortgages are intended to be long-term loans, with repayment terms up to 30 years.

In most cases, people choose to lock in their interest rate for the entire term of the loan through a fixed-rate mortgage. However, these mortgages require banks to take on some form of interest rate risk for an extended length of time. Because of this, they need to charge higher interest rates to compensate for the risk.

On the other hand, adjustable rate mortgages have a fixed-rate period for a much shorter length of time. This is commonly three to seven years.

After the fixed-rate period is over, the rate will adjust to market levels. With these mortgages, a borrower will start with a much lower rate. But takes on the risk that it will increase in the future. Almost all types of mortgages can come with either fixed rate or adjustable rates.

Conventional Mortgage

One of the most common mortgage types are conventional mortgages. A conventional mortgage is one that is not, in any way, guaranteed or insured by the federal government.

Because of this, banks are taking on more risk if the loan goes into default. To compensate for the risk, banks often require larger down payments and have tighter credit and income requirements for their borrowers. Conventional mortgages can be either fixed or adjustable and can come with very low interest rates.

FHA Mortgage

For those who are entering the housing market, one of the best options for a loan is an FHA mortgage. An FHA mortgage is a loan that is fully guaranteed by the federal government.

These loans are designed to help people purchase a home if they do not meet conventional loan qualifications. FHA mortgages typically require a down payment of three percent.

They also have looser credit and income requirements than conventional mortgages. However, they can be more expensive and require the borrower to pay private mortgage insurance.

VA Mortgage

For veterans of the U.S. Armed Forces, one of the best options for a home loan is to get a mortgage through the VA. The Veterans Association provides mortgages that are fully guaranteed by the federal government.

These mortgages are designed for members of the VA, and their surviving spouses, to purchase a home with less money down. VA mortgages tend to have higher rates than conventional mortgages, but they often require no money down at closing.

Saving for the Down Payment on a Home

home buyingPurchasing dream home can be a reality in life, but the down payment may be a formidable obstacle. In today’s real-estate market, many lenders require a 20-percent down payment for home buying.

A home that’s worth $200,000 would require a $40,000 down payment. Don’t let this number scare you off, however, because you can save up the funds with some careful planning.

Home Buying: Tips To Save Up For Down Payment

Cut the Nonessential Elements

Sit down with your significant other and carefully analyze your spending habits. Cutting a few dollars from each day in the span of a month can create ample funds in no time.

Buying coffee, getting a pedicure and other nonessential elements should be removed from the budget. Purchase generic items at the grocery store instead of the more expensive brands. When you cut down on small items, your savings will increase. Continue to focus on your core objective so that you’re always motivated to stay in budget.

Bank Surprise Income

When you realize that there’s extra money in your bank account, the first reaction is to spend it. Try to think of that money as a savings booster and move it immediately into a savings account.

Allow it to gain interest so that your money is working for you. Income-tax refunds, promotion bonuses and other funds should be treated in this same manner. Your down payment will accumulate a lot quicker when you curb any extra spending of that surprise income.

Work Toward a Promotion

Many people simply need some encouragement to strive for that promotion at work. Saving for a down payment for home buying is definite motivation. Apply for the position, and make yourself an example.

Work hard with precision as your goal. When supervisors see your loyalty and perseverance in a current position, they’ll equate that passion to a possible promotion.

If you earn the promotion, ask about pay increases and bonuses. All these funds should be immediately placed in a savings account to further your down-payment goal.

Be Logical About Withdrawals

Don’t be tempted by funds in your retirement account to pay the down payment. Removing money from any retirement account only compromises your future comfort and costs dearly in penalty fees.

Consider this money to be off limits unless it really is for retirement needs. This may mean that you have to drain most of your personal savings, but these accounts can be replenished with no charges to the funds.

Some families may want to turn to loved ones and borrow money. Although this situation can be beneficial, be aware that these funds need to be paid back.

If the money isn’t returned, your loved ones will technically own your home. Ideally, use your own savings to secure a home. The value will only grow in time.


Home Ownership for Veterans – Is It Worth It? Depends…

Home OwnershipTo purchase or not to purchase? That seems to be a consistent question among U.S. veterans. When frequent relocations have been such a regular part of life, it can sometimes be difficult to understand the benefits of home ownership.

So the question is, is owning a home worth it? The answer is – it depends. Determining whether purchasing a home is best for you depends on several factors. Here are some things to keep in mind as you contemplate becoming a home owner.

Long-Term Residency

Home ownership is a great option for people who plan to stay in the home for several years. It takes roughly 5-7 years to break even on a home purchase, after including the costs to purchase the home, and sell the home. If you sell too early after purchasing, you could end up losing money.

In general, housing prices tend to go up over the long term. But, if you plan on moving in a year or two, renting is probably a better financial decision. When you purchase a home for short-term occupancy, you run the risk of short-term market fluctuations decreasing the selling price of your home. If you are only holding on to a home for a few years, you are more susceptible to market turns and might have to sell at a loss.

Home Ownership Tax Considerations

Owning a home is a great benefit when tax season approaches. All the money you have paid towards interest in your mortgage payments is considered a tax write-off. That means you can deduct the amount of interest you paid from your gross income, which effectively lowers the amount of taxes you’ll be required to pay. For some people this is a huge benefit, and could be a great reason to consider buying a home.

However, if the amount of interest you’re paying doesn’t exceed the standard exemption amount, currently $6,100 for individuals and $12,200 for married couples filing jointly, you may not see much benefit.

Maintenance and Repairs

Many people want the ability to customize their home as they see fit. From renovations to landscaping, many people love having the final say in the look and feel of their property.

With so many older homes on the market, it can be undesirable to rent a home that does not appeal to your tastes. On the other hand, many people choose to rent simply because they don’t want the financial commitments and time requirements associated with maintaining a property.

When you purchase a home, you’re responsible for everything – from a leaky roof, to a broken water heater, to a flooded basement. If you are handy around the house or don’t mind paying for a professional handyman, home ownership is a good option for you. If you feel more comfortable simply calling the landlord when something goes wrong, you probably should consider a rental property.

Owning a home comes with many advantages, but it may not be for everyone. Do your research to determine which path is best for you.