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Owning vs Renting: Why High Rents Are Worse Than a Mortgage over the Long Term

Owning vs Renting: Why High Rents Are Worse Than a Mortgage over the Long TermIf you’re at the stage in life where home ownership is nearly within your reach, you’re probably wondering whether you should start looking for a home or whether you should just keep renting. Renting is easier, people say, and it gives you more mobility. But over the long term, all that rent money can really add up – and it eventually reaches a point where buying a home is a better deal.

So why is paying a high rent a worse option than buying a house and getting a mortgage? Here’s what you need to know.

Renting Doesn’t Generate Equity

One of the single biggest sources of wealth in the United States is home equity – as you pay down your mortgage, you invest more and more of your money into your property, and it appreciates in value. When you eventually sell that home, you make a profit. The monthly payment is something you’d have to make anyway, whether you rent or own – but when you rent, your monthly rent money lines someone else’s pockets, while when you own, paying down your mortgage actually creates wealth for you.

Renting Doesn’t Give You Access To Homeowner Tax Credits And Deductions

There are all sorts of tax benefits available to homeowners that renters simply can’t access. As a homeowner, you can deduct your mortgage interest from your taxes owing, reducing your taxable income – but there’s no such deduction for renters. You can also deduct property taxes and some closing costs when you buy a home – there are no corresponding tax benefits for renters.

There are also several tax credits available to homeowners that aren’t available to renters. Things like renovations or simply buying a home for the first time can give you tax benefits that renters can’t access.

If You Can Muster Up A Down Payment, Owning Is Cheaper In The Long Run

One of the biggest hurdles keeping young people out of the real estate market is the down payment. It’s not easy, but if you can save up enough money for a down payment, you’re actually better off buying a home than continuing to rent.

According to Trulia, the median home price in metro Houston in Texas is just under $163,000, while the median monthly rent for an apartment is $1,550. That means renting would cost $18,600 per year, while buying a home (assuming a 20% down payment and 30-year term) would cost $9,384 per year in mortgage payments. In other words, owning is about half as expensive as renting in the long run.

Renting may be a good short-term solution, but over the long haul, owning is almost always better. Call a local mortgage professional to learn more.

Real Estate Terms: The ‘Debt to Income’ Ratio and How It Affects Your Home Purchase

Real Estate Terms: The 'Debt to Income' Ratio and How It Affects Your Home PurchaseThe real estate market is rife with terminology that can make a home purchase seem more than a little complicated. If you’re currently looking for a home and are considering your loan options, you may have even heard the term ‘Debt to Income’ ratio. In the interest of simplifying things, here are some insights on what this term means and how it can impact your home investment.

Determining Your ‘Debt to Income’ Ratio

It’s important to consider what exactly your DTI ratio is before your home purchase as this will quickly determine how much home you can actually afford. To calculate this number, take your monthly debt payments – including any credit card, loan and mortgage payments – and divide them by your monthly gross income to get a percentage. In the event that your monthly debt is $700 and you make $2800 in income, your DTI is 25%.

What Your DTI Means To The Bank

The DTI is a very important number when it comes to a home loan because it enables the bank to determine your financial situation. A DTI of 25% leaves some wiggle room, as most banks will allow a DTI percentage that runs between 36-43%. In the case of the above example, this means that the most debt this person could take on per month is about $1200. While banks vary on this percentage, credit history plays an important part in the DTI that will be allowed.

Paying Down Your Debt Or Purchasing A Home

In the event that you have a DTI ratio that exceeds what your bank will allow, you will need to consider your debts before moving on to investing in a home. If you’re planning on purchasing a home in the next year, it’s a good idea to tackle high-interest debt first. However, if you happen to have a chunk of money saved up that you’re planning on putting into a down payment, it’s worth considering that putting more than 20% down may slightly increase the DTI percentage your bank will accept.

There are many fancy terms that go along with the world of real estate, but it’s important to understand what they mean so you can make them work in your favor. If you’re calculating your DTI ratio and are planning a home purchase down the road, you may want to contact your trusted mortgage professionals for more information.

Money Matters: Understanding How a Mortgage Loan Can Be a Productive Investment

Money Matters: Understanding How a Mortgage Loan Can Be a Productive InvestmentMost people tend to think of a mortgage loan as a necessary evil, an expense that has to be managed. But under the right circumstances, your mortgage can become a smart investment – something that makes you money instead of costing you money. With a little bit of ingenuity and a lot of hard work, you can turn your mortgage into a money-making investment that will pay dividends for years to come.

So how do you turn your mortgage loan into a productive investment? Here’s what you need to know.

A Mortgage Can Help You Buy A New Rental Property

One of the simplest ways that a mortgage can become an investment that adds value to your portfolio is by using it to buy an income property. For a first-time investor, the simplest arrangement is to buy a single-family home and rent it out. And if you live in a college town, you’ll find no shortage of students looking for housing – meaning you’ll never have a hard time finding renters.

In order to make this work, you’ll need to first have enough money saved up for a down payment. You’ll also need to have your rental rates high enough to turn a profit, but not so high that you have difficulty finding renters. And finally, if it’s possible, you’ll want to consider turning the home’s basement into a secondary suite, allowing you to max out your rental income.

A Mortgage Can Give You A Home To Flip

The second major way that a mortgage can be a productive investment is by using it to flip a home. House flipping has become very popular in recent years thanks to a number of television programs like Flip This House – and although flipping a home can result in a major windfall, it’s not easy. In order to make a house flip work for you, you’ll need to carefully plan out the flip and ensure that you buy the right property at the right time.

Beginning flippers should usually start with an older bungalow. You’ll need a solid credit score to secure the mortgage, and ideally, you should make your down payment in cash. You’ll also want to ensure the home is in a good neighborhood – this will make it easier to sell the home when you’re done renovating.

A mortgage is often thought of as an expense, but if you plan on buying a rental property or flipping a home, it’s actually a very smart investment. There’s always risk involved, of course, but with the right mortgage and the right home, you’ll have no trouble turning a profit. Call your local mortgage professional for help in getting the right mortgage for your investment property.

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