Purchasing a home is a big investment and like all big investments it is one that should be made carefully. There are quite a few advantages to owning a home, but there are also a number of disadvantages, especially if it is something you rush into.
One of the biggest disadvantages of owning a home is that it in many ways reduces your freedom, as most people are financially and legally tied to a home. This means that if you do not like your neighbors, you can not just leave, and if you do not like the city regulations, you can’t just move a little further out. This translates to a lot of reduced freedom, which is often taken for granted by renters, who whether they know it or not, are in most cases at most going to loose their deposit if they decide they would like to change location.
However, for many, this is not a disadvantage at all, as it does provide a strong sense of security and really helps the homeowner understand that it is more than just a few rooms and a bath, but it is actually some place you can call home. Still, it is something that should be considered and fully understood before buying a home.
Another disadvantage to owning a home is that if things break, you have to fix it, either by doing the work yourself or by paying someone, but ultimately, when the AC goes out in the summer, you can’t just call up and complain to your landlord. There are a number of federal and state regulations in place to protect renters, which ensure that rental properties meet a certain set of standards, so if your rental property isn’t meeting these standards, such as not having a heater, you have the power of the law behind you to ensure that the landlord meets these requirements.
While this can be a disadvantage for some, it is also a positive things for others. This is in part because it means you get to decide how you use and change your home. For example, if you do not like the living room, you can simply tear out the wall and start over, presuming it isn’t load bearing anyway. Along the same lines, if you would rather have a tank less water heater or a more energy efficient heat pump, you can install one and will not be held to whatever your landlord decides to install. Of course, this does mean it comes out of your pocket, but most of these types of improvements help improve the value of the home, so ultimately it ends up being, at least partially, a long term investment.
As the above examples show, there are not only advantages and disadvantage to owning a home, but it is never simply black and white either, with there usually being a positive side to most negatives. However, buying a home is a big decision and one that bears thought, so it is essential to consider all of the aspects associated with buying a home, including the mortgage or other loan sides.
Buying a home is a big investment, in many cases the biggest investment a person will make in their life, so it is not a decision that should be taken lightly. It is very important to carefully weight the pros and cons of home ownership, to determine if it is right for you.
There are a number of advantages to owing a home, but one of the biggest ones is that instead of paying rent each month, a portion of your monthly payment is actually going towards the cost of the home. At first, the amount that goes towards the principal of the loan is very small, with most of the monthly mortgage payment going towards interest, but after about five to eight years, this slowly reverses.
Assuming the home increases in value over time, this means that even if you have not completely paid off the mortgage yet, you should be able to sell the home, getting back some of your investment and hopefully even turning a profit.
One of the other main advantages of owning a home is that there are a number of tax benefits to home ownership. For example, all of the interest you pay on your home can be deducted from your taxes, which can have a major effect on how much you get back at the end of the year.
Also, repairs and renovations can also be claimed as a deduction, so there is a big motivation to fix and renovate ones home. Not only does this make living in the home more enjoyable, but it also helps to increase the value of the home, which is a win-win situation.
In addition to the regular tax deductions, there is also a First Time Homebuyers Tax Credit Available offered by the Federal Government, which provides up to $8,000 that does not need to be paid back. This is currently available to those who have purchased a home in 2009 and the first part of 2010. In the past, there has traditionally also been a tax credit available that is basically a no-interest loan, but it has to be paid back.
One of the other main advantages to owning a home is the freedom to renovate and modify the home without having to ask anyone. This means if you want to knock down a wall to make your bedroom bigger, you don’t have to ask permission, only ensure that it can safely be done without affecting the homes structure. This applies to smaller changes too, such as changing the color of a room.
While there are many advantages of owning a home, there are also some disadvantages. One of the main disadvantages is that you are effectively tied to the home through a mortgage. This means you can’t just pack up and leave if you get a job in a different part of the country or if you don’t like your neighbors. Instead, you must always consider the mortgage when you are thinking about moving or leaving the area.
Also, while the ability to do pretty much whatever you want to the home can be very nice, this comes with responsibility. If a pipe breaks or there is some other sort of emergency, you can not call your landlord up like you would if you were renting. Instead, it is necessary to handle the situation on your own, including the cost.
There are also some risks of owning a home, with the main risk being that the home will loose its value. Sometimes, as can be seen in the current economic crisis, the home looses its value as homes flood the market and there end up being more low cost options available, driving the value of homes down across the board. In the case of subprime mortgages, it is also possible for the terms of the mortgage to cause how much is owed to the bank to increase faster than the value of the home increases. For this reason, it is essential to spend some time shopping around for loans and make sure to steer clear of subprime mortgages, which have higher interest rates and bad terms, such as penalties for paying the home off early.
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.
With the current financial situation, many people are asking themselves whether now is a good time to buy a home. This is actually a very personal question and there is no stock answer that will be right for everyone. Instead, it is important to evaluate your individual financial situation and personal needs, before making what is for many the biggest single investment of their life.
With that said, there are a few silver linings to the current economic situation, making buying a home a very attractive decision, especially for first time home buyers.
The number of foreclosures is still on the rise and while this is quite sad for those who are facing foreclosures, it means that there is an increased number of homes available on the market, which are priced significantly below what would have been considered fair market value even just a few years ago.
With many banks wanting to get the bad debt off their books, there are numerous opportunities for someone to buy a foreclosed home at significant savings. This is not reserved to only homes in poor neighborhoods or in bad condition either, as millions of homes all over the country are currently empty.
An increase in foreclosures also has an impact on the price of other homes, as with so many options available, home values across the country are dropping.
With that said, it is important to consider what this means about the generally accepted value of a home. Many of the root causes of the current financial situation can be traced back to the commonly held belief that “home values will always rise,” leading many to become involved in homes they can not afford. It is commonly held thought that home values are not actually at an all time low, but are instead reverting back to their actual value.
Interest rates are at an all time low, in part because the FED, which regulates interest rates on borrowed money, have set the interest rate at basically zero. While the FED interest rate is not the same one that lenders offer, mortgage banks base their interest rate off of the FED rate, which is why we are seeing historically low interest rates.
Where even just a few years ago, getting a fixed rate below 6% was all but unheard of, many lenders are now offering rates that are closer to 4% or even lower. This low interest rate can save thousands and thousands of dollars in interest.
Last year, President Obama initiated the First Time Home Buyers Tax Credit, which offered up to $8,000 in the form of a tax credit that did not need to be paid back. The first time home buyers tax credit was intended only for those who had not owned a home in the last three years and was considerably different than the previous credit, which was a no-interest loan.
This tax credit was set to expire in December of 2009, but congress voted to not only extend it, but also offer a slightly reduced tax credit to people who have owned a home in the last three years.
These new tax credits for homeowners can significantly reduce costs and since it does not need to be paid back, it is a very attractive offer making buying a home in 2010 much more affordable. Those that can afford it can significantly reduce their interest payments by applying it towards the principal of the home or simply using it to help cover their bills.
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.
A Credit Score is a numerical value between 300 and 850 that is used by lenders to determine the risk offering someone a loan. Credit scores are based off of a number of factors, including the number of different lines of credit a person has, their payment history, and how long they have had credit. When applying for a mortgage, credit scores are one factor that are considered by mortgage lenders, so it is important to understand the relationship between credit scores and mortgages.
Credit scores are not exactly new and have been around for many years. The FICO credit score is the most common type used, but there are others as well, specifically those offered by the three credit reporting agencies. However, up until relatively recently, the average consumer was not able to see their credit score. This changed in 2003 with the passage of the Fair Credit Reporting Act, which required credit reporting agencies to provide consumers with their credit score for a reasonable fee.
There are many factors that goes into a credit score and a persons debt level is actually not what the credit score is predominantly based upon. Instead, only about 30% of the credit score is based off of a persons current debt, with more weight being placed upon how the person handles debt, as well as their credit history and payment history.
In times past, getting a home mortgage was a much more personal process. The loan officer took the time to get to know the person and made a subjective decision based upon the information available to them. Today, however, much of this personal touch has been lost, replaced by mathematical formulas that are processed by computers. These formulas take into account the persons credit history, their credit report, and their credit score, determining mathematically the risk of offering the prospective lender a home mortgage.
Since so much of the mortgage approval process has been automated, it is essential to have a good credit report and as high of a credit score as possible. Studies have been shown that the higher a credit score is, the lower the mortgage rate offered will be.
For example, according to myfico.com, in 2007, a person with a credit score between 760 and 850, which is considered to be very good, received an average interest rate of 6.3%. A person with a credit score between 500 and 579, on the other hand, received a interest rate of 9.9%. This shows the importance of having a high credit score before applying for a home mortgage.
Since having a high credit score is such an important factor when applying for a mortgage, it is a good idea to spend time fixing any areas and maintaining a healthy credit score before applying for a mortgage.
One of the most important steps of maintaining a healthy credit score is taking care of any errors on your credit report, which even though they may simply be a mistake, such as a creditor not reporting a payment. Even though the mistake is not your fault, it still affects your credit score the same, so finding and fixing errors on your credit report is essential.
Paying bills on time is also extremely important to help maintain a healthy credit score and is one of the main factors prospective mortgage lenders consider when considering a mortgage application. If you have missed a payment, always make sure all of your payments are up to date before applying for a mortgage or other type of loan.
It is also important to pay down your credit lines based upon the amount owed and interest rates of the credit line. For instance, it is important to pay down those credit lines with higher interest rates sooner, rather than later, which not only helps your credit score, but also helps you save money.