In today’s turbulent market, buying a home is not a choice that should be made quickly, nor taken lightly. It is true that home prices are extremely low, certainly the lowest in the twenty-first century, and interest rates have never been lower, with some mortgage lenders offering interests rates between 3.5% and 4.5%. However, many fear that we have not reached the bottom yet and that with the troubles in America’s economy, it is hard to know when is the right time to purchase a home.
While we may not have reached the bottom of the housing market, it is safe to say that it is currently a buyers market. This is not a good thing if you are trying to sell a home, nor is it good for housing developers, with most areas in the United States having multiple empty lots that may not actually have a house built on them for years, if they ever do. However, while this is not good for real estate investors, it does work out well for the home buyer.
One thing to keep in mind is that there are many foreclosures available all over the country. Some cities, like Detroit, have a disproportionate number of foreclosures and empty homes, but this can be seen in almost all cities in the country. What this means is that there are thousands upon thousands of Bank Owned Homes, which are basically dead weight on the banks ledgers. So, the sooner the banks can get rid of the bad debt, even if it means taking a considerable loss, they will look better and more secure, at least on paper.
So, the buyer has a lot of flexibility when making an offer on a foreclosure, as well as having many homes to check for. Also, where once buying a foreclosure meant investing in a home that had holes in the wall, the wiring ripped out, and no AC, more and more we are seeing quality homes that are in excellent condition being foreclosed on. As a result, there is no need to get stuck with a fixer upper, unless you want one. Of course, the flip side to that, is that as a result of so many good condition foreclosures, if you do go for a fixer upper, you will likely be able to get it for much less.
Not only does the high number of foreclosed properties on the market mean that there are many low cost options out there, but this also has an effect on the price of regular homes, driving the prices lower. Again, while this isn’t a good thing in for those selling a home, it is a good thing for home buyers.
While the number of foreclosures, low home prices, and excellent interest rates make it a buyers market, most lenders have gotten much more strict about how they lend out credit. This is, of course, at odds with the fact that Congress and President Obama decided to transfer billions of our dollars to the bank, but this is besides the point. The fact is that even after this transfer of the public wealth to the major banks, they are not lending. So, getting a loan becomes a problem, especially for those with less than perfect credit.
One of the best things you can do is speak with your local credit union, as more often than not, most credit unions have been practicing much less risky lending practices and are more connected to the community.
It is also important to check your credit report and clean up and problems before applying for a loan. Remember that having a line of unused credit is often looked at as a good thing, so after paying off your debt, don’t immediately cancel your credit line, unless there is a charge for keeping it.
Getting credit is not impossible now, but it is much harder, so make sure that you look as attractive as possible before applying for a loan.
Buying a home is a very big investment and not one that should be taken lightly. It is important to consider both the benefits and drawbacks to owning your own home, while comparing these to your personal situation. This will help you decide whether it is better to rent or purchase a home.
When you rent a home or an apartment, the monthly payment is paid to a landlord. Often, this will be the actual owner of the home, but property management companies are also popular. In either case, the rent is due at a set point each month and is paid to the property owner. As a result, money paid is not an expense each month, which comes out of pocket for the renter.
One of the major advantages of renting is that as a renter, you are not responsible for repairs or any other maintenance, aside from things like mowing the lawn or perhaps changing the filters. This doesn’t mean that you aren’t responsible for damage, but it does mean that the renter is not responsible for repairing things like the roof or the air conditioner. So, if the plumbing burst in the middle of the night, you can simply call up the landlord and by law they must come and repair the problem.
Another advantage of renting a home is that there is usually little tying the person to the home. So, for example, if they decide they want to move to a new city or a new area, they can do so with few repercussions. In the worst case scenario, assuming there is no damage to the apartment, the renter will loose their deposit, but this only happens if they break their lease.
However, there are several downsides to being a renter. One of the biggest ones is a general lack of privacy. This is because the home owner or rental property can come into your house basically whenever they want, providing they follow a few basic rules.
Also, while not having to worry about repairing things, such as a broken washer, can be nice, you can not actually modify the home as you please. Sometimes the homeowner may allow a renter to paint the walls, but this is usually it and requires the approval of the landlord.
Another disadvantage is that since a renter does not own the home, living in the home is a privilege. A disagreement with the landlord can lead to an eviction and if the landlord dies or sells the home, there is no way to guarantee you will be able to stay after the lease expires.
Buying a home has a number of advantages and can be a wonderful experience, but since most people don’t have the money for the home upfront, they must take out a rather large loan called a mortgage. This means that even though you technically own the home, the bank has a lien on it and if you miss too many payments, you risk loosing the home and being foreclosed upon.
The level of debt can be a little overwhelming, but since part of each months payment is going towards the principal of the loan, you are not paying out of pocket in the same way as when you rent a home.
Of course, during the first 5 to 8 years, most of the payment is going towards the interest of the loan. During the first few years, it is common for less than 10% of each payment to actually go towards the principal of the loan. However, with that said, you are not simply throwing your money away in the same way as when renting, as ultimately, assuming the home does not loose value, some of the money paid towards a mortgage is retained.
One of the other main advantages to buying a home is the many tax credits available to a homeowner. From the first time home buyers tax credit, which is a credit of up to $8,000 that does not need to be paid back, to simply being able to claim all of your interest and maintenance costs on your taxes, there are many tax benefits to owning a home as opposed to renting.
Another advantage of owning a home is that you can do pretty much whatever you like to it. This means if you don’t like the carpet, you can simply tear it up and put down a wood floor. If you want to make the living room bigger, you can knock down a wall and don’t have to ask anyones permission.
Of course, the flip side to this is that if something breaks, it will be the homeowners responsibility to fix the problem. So, there is no one to call when the plumbing breaks at 3AM, well except perhaps for a plumber.
It is also not possible to simply walk away from a home if you do not like the area or your neighbors. It will either be necessary to find someone to buy the home or damage your credit rating. This can mean much less freedom, as most people become tied to their mortgage.
Often, the argument of Renting vs Buying comes up and both sides of the debate bring up some very important points. However, in the end, no argument should be taken at face value and instead each person should take the time to evaluate whether renting or buying is best for them.
One of the main reasons that many like renting is that if something breaks, you can just call up your land lord and let them worry about it. For example, if the Air Conditioning needs to be replaced, it will come out of the land lords pocket and not yours. This means that you are not reliant upon your own funds or time to fix a problem and instead can simply pick up the phone.
Not only, do you not need to worry about things breaking, but basic home care is seldom the concern of a renter. This means you don’t have to worry about replacing the roof or a tree falling on the home. Instead, usually the biggest upkeep a renter might have to worry about is mowing the lawn.
Another reason many people prefer renting is that it offers more freedom than owning a home does. This is to say, if you want to pick up and move to a different city or even country, you can do so, with little or no consequence. In the worst case scenario, you might be breaking your lease, in which case you would loose your deposit, but aside from this, there are very few ramifications for leaving. This can be especially important when you are young and have not settled down yet.
When you purchase a home, you are also in some regards at the whims of the market. For example, home prices have been dropping for the past year or so and many people now owe more than their home is “worth.” This isn’t necessarily a problem, but if you do decide to sell your home when the value is low, you will loose money. Home values and property values is not something a renter has to worry about.
Buying a home is also a big commitment financially and since most people don’t have the money to buy the home upfront, they must use a mortgage. This means that you not only owe your lender a great deal of money over the course of a long time, but you also end up paying a great deal of interest on the home.
Renting offers some advantages, but it also has some downsides. One of the biggest downsides is that at the end of your lease, you don’t have anything to show for all the money you spent. In some regards, it is really money down the drain, as you see no return on the money you spend renting. This differs from owning a home, where each of your payments is going towards the principal of your loan.
Of course, being that most mortgages are for 30 years, much of the money you spend on your home is going towards interest, so this point is arguable. However, in most cases, when you decide you are done with your home, you can sell it and at least get some, if not more, of your money back. This can not be said of renting, in that when you walk away from your rented home, you will have nothing, except perhaps your deposit.
Another disadvantage to renting is that you are at the whim of the landlord. There are of course a number of renter’s rights, so there is some protection, but in the end, if your landlord wants you out, you will end up out.
Also, by renting, you loose a great deal of your privacy. It is not uncommon for the landlord to send someone over every month to check your filters, fire alarms, and ensure the apartment is in good repair. If they decide something needs to be fixed or replaced, there is little you can do to avoid them coming into your home. This is not the case when you own your own home and are, in effect, your own landlord.
Ultimately, whether renting or buying is best for someone, greatly varies from person to person. What is an advantage to some, might be a disadvantage to others, so it is very important to analyze your current financial and personal situation, to determine what is best for you.
A big part of this decision also comes down to analyzing the current housing market and knowing when to act. For example, house prices are currently at an all time low, as are interest rates. Compared to a few years ago, you can get much more bang for your buck, so it could be a very good time to buy a home. It could be that house prices and interest rates will continue to go down, but they are currently lower than they have been for many years and eventually, the prices will go back up. Knowing when to get your money in, is a big part of deciding between renting vs buying.