Tag Archives: buy

Buy-a-Home vs. Rent-a-Home Choice has Great $ Impact

11-5-rentorbuyThe answer to the question about whether any individual or family would be better off if they rent or buy a home can differ depending upon when the question is posed as well as the particulars of the available properties in either category. Even when the financial calculations make it clear that to buy a home in Highlands would result in significant savings, it’s possible that credit problems or simple cash inaccessibility render the choice moot—for the moment, anyway.

The reason a family budget is universally recognized as the single best way to get a handle on finances is because if you don’t know how much you’re spending in any given area, you won’t know when it needs to be curtailed. Given the size of monthly rent or mortgage outflows, it’s a pretty good idea for anyone with a long term outlook to know what the rent vs. buy a home tradeoffs are. The answer to that can be spectacular enough that a change in plan is called for.

For some time, one of the national real estate web sites—Trulia—has posted a calculator that yields an approximate answer to the rent or buy question. It is aimed at metro areas only, and concedes it’s at best an approximation, but when you enter “US Average” for the location, it comes up with a percentage difference. Right now, for the U.S. median home price of $180,800 and median rent price of $1,545, “buying a home” comes up as 44% cheaper than renting!

Now, there are a whole bunch of assumptions that should have us taking that answer with a shaker or two of salt. This assumes, for instance, that were you to buy a Highlands home with the national parameters you would be the happy beneficiary of “today’s mortgage rate,” which Trulia presents as 3.6%. Yes, this rate is actually being offered in some places to borrowers with spotless credentials, but counting on it would be iffy for most folks. Yet if you substitute 3.9%, buying a home is still 43% cheaper; a 4.2% loan makes the answer 41% cheaper.

Likewise, because the tax advantage gained when you buy a home is so stark, your income tax bracket can tip the buy vs. rent comparison greatly. If you move down from the assumption of a 25% tax rate (seems unlikely for the $180,000 median home buyer), even with a 15% tax rate, buying is 41% cheaper.

Sooooo, it looks like it’s always a very good idea to buy a house instead of renting it, right?

Wrong! The most important factor is the one that makes the most sense: “how long you intend to live there.” Its starting point assumption begins at 7 years. Move that down to 3 years and—all else being equal—the calculator comes up with buying being only 19% cheaper. Assume 2 years, and the buy vs. rent answer is that the costs are about the same. And at 1 year, renting is 37% cheaper than buying!

The precision of these percentages are unlikely to be spot-on for any given local individual or family, but the answers are probably useful anyway. It does indicate that for anyone planning on staying put locally for at least 3 or 4 years, taking a closer look at the rent a home/buy a home financial impacts will be worthwhile. I can help with current realistic Highlands specifics, so why not give me a call?

Low Credit Scores Don’t Always Nix First Time Home Buyers

5-13-creditThey really ought to teach this stuff in school: real-life, day-to-day economics. Highlands youngsters out on their own for the first time are usually left to trial and error when it comes to mastering things like how to lay out a personal budget or use credit advantageously. Or even how to go about selecting a bank, or opening a checking account…

So when it comes to buying their first Highlands home, it’s very common for newcomers to put off confronting the whole daunting issue. When you’re still new to your career, tackling a purchase involving years’ worth of income channeled through a maze of unfamiliar procedures is easy to put off. But when the delay stretches well past the point in their financial lives when it would be clearly advantageous to own rather than to continue renting, it’s the same thing as throwing hard-earned cash overboard.

Since the asking price for even the most modest Highlands home is a number with multiple zeros on the end, you might assume that common sense indicates it’s out of reach. All the more so if early mistakes handling credit cards or student loan troubles have damaged your credit score. The good news is that potential home buyers with less than outstanding credit can still buy that first home—given some careful financial planning and research on your part.

They really ought to teach this stuff in school! That having been said, here is a broad-brush, very basic rundown of the lay of the land aimed at first time Highlands home buyers:

  • The most important factor banks use to determine your mortgage eligibility is your FICO (Fair Isaac Corporation) credit score. The numbers range from 300 to 850, are based on a number of factors including how much debt you have and your payment history. In general, borrowers will need a credit score of at least 650 to qualify for a conventional home mortgage loan.
  • BUT, it’s not the only factor. Although your credit score tops the list of elements that determine your eligibility for a mortgage, banks will also consider the amount of money you can commit to a down payment. Saving up may delay your first home purchase, and definitely takes discipline…but today, the amount you need is changing. Different lending institutions have different rules for determining eligibility, and some offer-
  • Non-conventional loans. Today, first-time home buyers with relatively low credit scores can often secure such loans. You should research Highlands banks to find those currently offering non-conventional loans to borrowers with qualifying credit histories. You should also consider a Federal Housing Authority (FHA) loan, which eases credit requirements. For example, you might qualify for an FHA loan with a credit score as low as 580 with a down payment of just 3.5%!
  • You can also use money from an IRA for your down payment. In other circumstances, withdrawing money from your IRA before age 59 ½ means paying a 10% penalty, but that rule doesn’t apply when you use your IRA to purchase a first home!Bottom line: a low credit score doesn’t necessarily mean you can’t buy your first Highlands home. I’m here not only to help you find a home, but to help clarify the options that make possible that dream of owning your first home. Call me anytime!

Now or Later: When Is the Right Time to Buy a Highlands Home?

4-1-15-buyahouseA few weeks ago, an eye-catching article surfaced on the Investopedia web site—one with the arresting title of “When is the Right Time to Buy a Home?” I have always assumed that for prospective Highlands home buyer, the answer to that question varies by the individual circumstances. But if there is a more cut-and-dried universal answer, it would certainly be good to know it. Definitely worth reading.

Despite its name, Investopedia is not an encyclopedic history of investing. Its own history is interesting, though—it started in Canada, was acquired by Forbes, then sold a short while later to ValueClick for $42,000,000 (talk about good investments)!

The article that was to supply the answer to “When is the Right Time to Buy a Home?” did turn out to have the right answer, though it’s a little less definitive that you would hope—prospective Highlands home buyers don’t get the simple “NOW” or “LATER,” which would be most useful. However, before the final answer is presented, scattered between the many ads and other clickbait that apparently pay for Investopedia are some interesting current facts and observations, and several cop-outs.

When it comes to the big question, “When is the Right Time to Buy a Home?” by halfway through the article, it’s looking a bit more like “now” than “later.” It cites The National Association of Home Builders’ Housing Opportunity Index, which now finds that nationally, the majority of homes are affordable for families earning a median income of $63,900. True, most Highlands families don’t earn exactly $63,900, but still, it’s good to know. Reading on, we learn that this level of affordability has been better in the past, and might be better later “unless mortgage rates move higher in the future.” Since elsewhere on the site we find that “the consensus is that interest rates will rise,” it doesn’t take Sherlock Holmes to deduce where “When is the Right Time to Buy a Home?” is leading.

Or so you might assume, before the article quotes a saying on Wall Street: Don’t try to time the market, which Investopedia advises also applies to real estate. Oddly enough, it also says, “If you’re looking for an edge, interest rates are near historic lows so now appears to be a better time than most for purchasing a home.”

That’s a pretty strong hint, but the answer isn’t spelled out. Yet. There follow some bits of good advice (hire an inspector prior to purchasing a home; don’t buy a car while your credit is being checked; inquire about taxes) before we get to the ultimate heading, “THE BOTTOM LINE.” It took a while, but here is the advice Highlands readers would have been looking for all along, bottom-linewise.

Investopedia’s answer for “When is the Right Time to Buy a Home?” is a lot more sensible than most: “When you can afford it.”

I couldn’t agree more. Even if all the other factors weren’t as positive as they are today, being able to make a good fit financially is at the top of the list.

If now is that time for you—or if it’s time for you to put your own Highlands home on the market—it’s also a good time to give me a call!

Highlands Rental vs. Purchase Choice Involves Multiple Factors

1-21-rentbuyWhen your primary residence is one of our Highlands rentals, from time to time you may find yourself pausing, pen hovering over checkbook, thinking, “What if this check were going to buy this place, instead…?”

It’s a nearly unavoidable thought because common wisdom has it that buying a Highlands home usually makes more financial sense than renting it. That sounds sensible simply because at the end of the day (or, more accurately, at the end of a 15- or 30-year mortgage term), ownership means you no longer have to write those checks: you own that Highlands rental. It could be true—but there’s a lot more involved in the purchase-or-rental decision. If you make it a point from time to time to recalculate your situation, should it turn out that you aren’t any better off exiting the rental ranks, writing those checks to the landlord will become a less stressful activity.

The first consideration is location, location, location—but not in the usual sense. The question is how permanently you are likely to stay where you are. What are the odds that your job or family issues will take you away? If it’s likely that you will be moving out of Highlands within five years or less, a rental could well be a better choice. Buying and selling expenses—plus the time and effort involved—are factors that often make it wiser to delay buying until you are situated more permanently.

Then there is the real monthly outlay comparison between the two. Realistic calculations for owning take into account all of the monthly expenses involved. They include property taxes, homeowner or condo fees, insurance, gardening expenses, utility costs, and maintenance costs (they tend to be more than you first estimate). If your Highlands rental check is significantly smaller than the monthly home owning total, your financial ship might float higher if you put the difference into a savings account. You should consider whether your money might be put to better use elsewhere.

That last item points to the overriding issue: whether your current savings are able to support a purchase without incurring too much financial strain. That monthly home ownership calculation did not include the initial cost—the down payment. This part may have become less of a hurdle recently: the Federal Housing Administration has reduced its requirements. In fact, it may be possible to buy a house with an FHA mortgage with as little as a 3.5% down payment…although a higher down payment means a lower mortgage payment and no private mortgage insurance.

The last part of your calculation is one that can be a very positive financial benefit of ownership vs. rental: the mortgage interest tax deduction. Especially for those in higher income tax brackets with hefty mortgages, it can tilt the scales toward ownership.

I’m here to offer help and advice about any Highlands rental and ownership questions—in fact, about any of your real estate questions. I hope you won’t hesitate to give me a call!