Buying versus Renting

August 17, 2012

There are many advantages to buying a home versus renting one. View these advantages in the Buy vs. Rent Comparison Chart, or view a financial comparison of buying versus renting in the Buy vs. Rent Calculator.

Your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. To figure out the amount you can afford, please click Affordability.

Savings: Buying a Home

In many cases, the amount of money a renter spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. With the tax benefit for homeowners, the savings can be significant.

Buy vs. Rent Comparison

The chart below shows a cost comparison for a renter and a homeowner over a seven year period.

  • The renter starts out paying $800 per month with annual increases of 5%
  • The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000
  • After 6 years, the homeowner’s payment is lower than the renter’s monthly payment
  • With the tax savings of homeownership, the homeowner’s payment is less than the rental payment after 3 years
Years
Rent Payment
Mortgage Payment
Monthly Difference
After Tax Savings
Yearly Difference
After Tax Savings
1 800 1000 -200 -50 -2400 -600
2 840 1000 -160 -10 -1920 -120
3 882 1000 -118 +32 -1416 +384
4 926 1000 -74 +76 -888 +912
5 972 1000 -28 +122 -336 +1464
6 1021 1000 +21 +171 +252 +2052
7 1072 1000 +72 +222 +864 +2664
8-30 Savings increase every year


Monthly Expenses: Buying a Home

Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for these expenses (listed below). They are additional costs to your monthly mortgage payment and should be included in your budget estimates:

  • Property Taxes and Special Assessments
  • Home/Hazard Insurance
  • Utilities
  • Maintenance
  • Home Owner Association (HOA) Fee: Doesn’t apply to all purchases. It pays for trash and snow removal and maintenance of common grounds if applicable.
  • Membership Fee: It may pay for recreational facilities and other services (cable TV).

 

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Life After Bankruptcy

August 17, 2012

CITY, ST – Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead to unsound financial decisions with devastating results.

Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.

One of the worst things people can do in this situation is to borrow more money to try and pay off their debts. On paper, this is clearly an unwise financial decision. In the real world, however, it is very common for individuals to pursue this strategy in an attempt to buy time and hold off on filing for bankruptcy. On the surface, this is certainly a noble notion; however it can often compound the problem and serves only to delay the inevitable.

For many homeowners in the midst of this upside down cash flow, speaking to a qualified mortgage professional is a much better option. An experienced loan officer can objectively look at your finances and help you determine if restructuring your mortgage would not only help, but possibly even alleviate any need for bankruptcy.

If bankruptcy is the only option, seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for you as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.

When filing for bankruptcy, be completely honest and accurate regarding every aspect of your financial situation. This includes any changes to your income which may occur throughout the process. Bankruptcy is a federal procedure, adjudicated by real judges, and scrutinized by representatives who coordinate with the Department of Justice, the FBI, and the IRS.

Here are some additional steps you can take to make the bankruptcy process as painless as possible:

  • Save all paperwork regarding your bankruptcy, and keep it organized. This will prove beneficial after your bankruptcy as you now have all of the pertinent information in one place. Also, be sure to write down your discharge date. It’s surprising how many people forget to do this.
  • Establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
  • Throughout the bankruptcy, do your best to not only live below your means, but to save as much cash as possible. You never know what you may need it for once the process is completed.
  • Be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your need for credit.

Tips for Rebuilding Credit:

  • If you must buy a car, focus on transportation as opposed to style. Buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what your budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
  • Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Missed payments result in deductions from the account. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. (Be wary of offers of “easy credit” or any card which asks you to call a 900 number. You will be charged for the call.)
  • Meet with a credit repair specialist. Not only can they help you clean up the damage to your credit report, they can advise you on specific ways to rebuild the credit you lost as well.

While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to you within a year or so after a bankruptcy. If you’re in serious financial trouble, the trick is to get the help and advice you need from professionals you trust.

 

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Home Mortgage Refinancing 101

August 17, 2012

I have some exciting news! I wanted to let you know that amidst all of the negative economic news, home loan rates have actually rallied and reached near record low levels. My team is having a lot of fun helping our clients take advantage of this opportunity!

What does this mean to you?

You could reduce your monthly payment and interests costs, shorten the term of your loan or even borrow additional funds for alternate expenses or investment options.

If you’re looking at being in a home short-term or carrying a mortgage short-term, then there is some very attractive short-term money available. It’s really kind of surreal to be writing about interest rates this low!

One possible option, which has become a very popular strategy, involves refinancing to a shorter-term loan for a payment that is comparable to your current payment. This is a great way to take advantage of the interest rate differential. Another popular option is the “no-cost refinance,” which is just as good as it sounds! Feel free to contact me to discuss whether or not one of these options might benefit you.

If you are like some who have been concerned with home values declining, I want you to know that there are programs available that allow you to still take advantage of today’s low interest rates. If this applies to you, then I’d welcome the opportunity to chat.

One thing is for sure, you don’t want miss this chance to save money. If you’ve already taken advantage of the historic rates that have been offered, then why not spread the good word to your friends, family, co-workers and neighbors? We love meeting new clients!

Please don’t hesitate to contact me with any thoughts or questions—and of course to see what options might exist for you.

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