When it comes to your ideal living arrangement, choosing to buy or rent a home can be a difficult decision to make. So many questions and waves of self-doubt enter your mind that you never thought of before these options came into your life. Can I make the payments? What if I lose my job? Am I safer just renting? To help ease your troubled mind, we’ve come up with a few scenarios and some coinciding details for you to think about:
How Long will You be in the Area
If you’re planning on moving out of the area in just a few years, renting is probably the best living arrangement for you. One of the main reasons for this is the fact that mortgages are mostly interest payments for the first several years, leaving very little of your monthly mortgage to go onto the balance, or principle, of the loan itself. When the time comes to move and sell your house, especially if property values don’t increase during your homeownership period, after paying realtor commissions and numerous other fees, you could end up with a negative entry for your checkbook balance.
Have You Calculated Additional Costs of Homeownership?
Besides a new, larger residence payment every month, there are a few items that homeowners pay for that the typical renter doesn’t. For example, most landlords pay the water bill for tenants (actually they just add it into your rent)- not just hot water, all water. When you own a home, you either have town water and sewer or some sort of artisan well and septic system. Town water and sewer typically send you a bill every 3 months for your usage. If you have your own well and septic, it won’t cost you anything on a monthly basis, but you will need to have routine maintenance completed, and may even need to replace the entire system at some point. Don’t forget about buying a lawnmower and other exterior lawn tools, property taxes and hazard insurance, as owning a home can take a lot of work, maintenance and money.
What the heck is PMI?
PMI stands for private mortgage insurance. Usually, if you’re financing more than 80% of your home’s value (less than the industry standard of 20% down), your loan funding company may require you to pay private mortgage insurance. This is different from hazard insurance, for this type of insurance doesn’t benefit the homeowner at all. It merely insures the nice people who lent you the money to buy your home in the unfortunate event that you don’t make your payments, the house is foreclosed on, and eventually sells for less than the loan amount. With PMI, the investors don’t lose money.
Of course, if you find a really good deal on a property and you truly feel that you can make money on this investment, go ahead, but proceed with caution. I would be unfortunate for your home to turn into a Money Pit that sucks away all of your hard earned cash.
