There
are many things to consider
when buying a home. Since it
is likely that the purchase
of a home will be the most expensive
purchase of your life, you will
want to consider several things
before you even start to look
for a home.
If
you are currently renting, you
need to know about the possible
advantages of home ownership,
and if they apply to your current
situation. Are you financially
ready to make such a large investment?
How expensive of a home can
you afford? Is the current market
environment favorable for buying
a home?
Renting
Vs. Buying
Compare
the cost of owning and renting
the same home. This is simple
enough to do. Just take the
monthly mortgage and other housing
costs and compare it with the
cost of renting that same property.
Remember to figure the tax savings
by taking the cost of the
mortgage payment plus property
taxes and multiplying that by
your tax rate. This will
give you a fairly good idea
of your tax savings each month.
Subtract those savings from
your monthly housing costs if
you were buying and compare
that with the rental rate. If
they are very close in monthly
expense it is usually a good
value to buy.
This
can also be a good way to compare
the current housing market.
It will tell you if the current
housing is a fair value, over
priced or under priced. Just
remember that in some very desirable
areas it will almost always
cost more to buy then to rent.
If the additional expense is
more then 20 to 30% you should
be cautious. Be particularly
cautious if you plan on moving
again in the next 3 to 5 years.
The
Advantages of Home Ownership
It
should cost you less to own
a home then to rent. There is
a fairly simple calculation
that will tell you this:
Take
your monthly rent multiply by
200 = purchase price of home
($___________rent
per month X 200 = $_________________
)
Example:
$900
X 200 = $180,000
In
this example, the payment on
a $180,000 home would be comparable
to a $900 monthly rental payment.
In
addition to the current cost
of rent vs. purchase, you must
also take into consideration
the future cost. As a renter
you are exposed to future rent
increases. It is reasonable
to expect an annual increase
of 4% per year to your rent.
There
are many advantages to home
ownership. The value of a home
usually increases during the
years that you are paying your
loan down. This increase in
equity is building up the wealth
you accumulate in your home.
Even without this expected increase
in value, paying on a mortgage
over 30 years can guarantee
that you will own your home
free and clear when you retire.
This reduction in monthly housing
expense is something many retirees
look forward to. If you choose
to trade down after retirement
to a less expensive home, you
can use the difference in value
to free up a lot of extra income
you currently have in your home.
The home equity you are building
in your home can also be borrowed
against at some future time
for college expenses, vacations,
remodeling the home or almost
anything else you might need
the money for.
Another
benefit to home ownership is
that you are not subjected to
the intrusion of a landlord.
Generally no one can tell you
what you can and can not do
with the property. If something
is broken you are not at the
whim of someone else as to when,
how, or why, it should be fixed.
A landlord can decide to sell
the property and put you out
into the street. As a homeowner,
you have the security of knowing
that you have a place to live,
as long as you continue to meet
your mortgage and tax obligations.
The
Advantages of Renting
Generally
it is easier to find a place
to rent then it is to find a
place to buy. If you are just
renting you will more then likely
put up with some minor annoyances
because they will only be temporary
in most cases. If something
gets broken, you dont
have to concern yourself with
the cost involved to fix it.
If the quality of the repair
is not to your standard it doesnt
matter as much if this is not
your property.
As
a renter you do not have your
money tied up in a property.
This allows you to have more
flexibility in deciding where
you live and how long you want
to stay there. You can keep
your excess cash for other things
that come up in your life since
you dont have to budget
for housing repairs and expenses.
This allows you to have your
money in more areas of investment
such as 401K, IRA, stocks, bonds,
or a small business. This allows
you better diversification of
your money.
Renting
will also be cheaper then buying
if you will be moving soon.
It costs money to buy and sell
a house. There are real estate
commissions, title fees, loan
fees, reports and inspections.
A home must appreciate approximately
15% just to recoup these costs.
If you plan on moving within
a three-year period it may make
more financial sense to rent
then to own.
Finally,
dont make the decision
based on someone elses
expectations. This is a decision
that only you can make, and
only after careful consideration.
2465
E. Orangethorpe Ave.
Fullerton, CA 92831
Phone: (714) 992-66355
Fax: (800) 449-4041
California Real Estate License
# 01138374 |