Renters: Are You Ready to Buy a Home?
Tired of paying rent on a monthly basis? Not sure if it makes sense to buy a home instead of rent? Here are five factors renters will want to consider before tearing up their lease and buying their own home.
What is a Mortgage?
Your monthly mortgage can be broken down into four, sometimes five, pieces: principal, interest, taxes, insurance, and HOA fees. The first is your principal which is how much the home costs. The next is the interest which covers the fees associated with borrowing money. Depending on where you live will determine how much you will pay in property taxes. You should be prepared to pay about one percent of the value of your home (but make sure you research beforehand!). Before being allowed to purchase your home your mortgage company will confirm that you have homeowners insurance that will cover the cost of rebuilding your home in the case of a disaster. Not every homeowner will need to pay HOA (homeowner association) fees as these fees cover the maintenance of buildings or the landscape many times associated with condos, gated communities, and apartments..
Understanding your Taxes
Owning your home can come with some benefits around tax season. When filing your taxes you are able to deduct your interest and property taxes. This will reduce your monthly mortgage costs over time by reducing your taxable income.
Renting or Buying, Which is Better?
If you do the math correctly you can, at times, own a home while paying a similar cost to what you could pay to rent a home the same size. You must remember that after computing your mortgage you can deduct property taxes and interest from your taxes. You will see this benefit at the end of the year on your tax return.
Make Sure you do the Math
Your mortgage amount will change based on your interest percentage, how much you place for a down payment, and whether you choose a 15 or 30 year mortgage. The interest you will pay on your mortgage is partially based on the amount you choose to put down for your down payment. Many people believe that you need to put 20% down, however this is not always the case. The more you do put down though, the better the interest rate you are able to secure and the less you will have to pay monthly.
What is your Credit?
In order to get a lower mortgage rate it is important that you have a good credit score. Make sure you check your score and prepare your credit before considering to buy a home by continuing to make payments on time and reducing any outstanding credit debts.
As a renter preparing to buy a home it is important that you look into the cost benefits of owning a home versus renting a home and then undertake the necessary steps to ensure you understand the mortgage process and its consequences.