Renting Vs. Buying
Buying a home can be a scary situation. The thought of this big expensive monthly mortgage keeps a lot of people from taking action and participating in the so-called “American Dream” of home ownership. As a loan officer I’ve heard all kinds of reasons why people don’t buy homes. Some of them are quite funny and some of the are not funny at all. Most times it’s a huge case of misinformation. So much to the point that it’s actually sad at times to know that the General Public is so misinformed. I thought that I should put together a post to let people know the truths behind home buying.
Renting vs. Buying- Myth 1 “I don’t Have A Down Payment”
I’d be willing to bet that most people out there would continue Renting Vs. Buying because they think that you need to have a 20% Down Payment in order to buy a home. Fortunately this is not true. It hasn’t been true for so long that I can’t even remember when it changed. When people think this they are confusing having mortgage insurance on their loan. When you don’t put down at least a 20% down payment some loans will have what’s called Private Mortgage Insurance. PMI is placed on the loan to help protect the investor in case you default on the loan before you’ve got 20% equity in the home. Some will call this a waste of money, and it some cases I can see it, and in some cases I don’t. Back in the Sub-Prime days a lot of loans didn’t have PMI and a lot of loans defaulted. When a loan is defaulted on the bank has to try and sell the home for at least the payoff amount. In most cases it’s not a problem, but when you don’t have 20% equity in your home the bank could end up taking a loss. If they have to take that loss and you don’t have PMI… guess who’s responsible for that difference. You guessed it. They’ll be coming after you.
If you have PMI on your mortgage loan and default, the bank can’t come after you for any additional cash. They just have to take the loss and you can walk away from the home. No worries because you paid for the mortgage insurance. It sucks to have to pay for it, but it’s there for a reason and not a total waste of money. I get it, the banks are lining their pockets a little, but for a first time home owners who’s thinking about Renting Vs. Buying, it’s a necessary evil.
Please don’t confuse this with “Home Owners Insurance” Home Owners insurance is there in case your house burns down or is hit by a storm etc. All homes must have home owners insurance.
Renting Vs. Buying- “Myth 2 Banks Make It Tough”
Another myth out there is banks aren’t giving out loans anymore. Mortgages are super hard to get approved for and the process takes 60 to 90 days. If you’re reading this obviously you’re thinking about renting vs. buying and I’ll be the first to tell you. That’s the furthest thing from the truth there could possibly be. First the approval process shouldn’t take you more than 30 days and that’s from Start To Finish. To be honest with you when you speak with me and I collect your information via appointment or telephone I can have your loan approved within an hour. It’s the processing and underwriting piece that people get confused. The automated underwriting system approves your loan based on the information that you provide. That’s the easy part. What stretches the process out to about two weeks is that information that you provided us has to be verified.
Banks are still giving out mortgage loans. Your credit does not have to be perfect. In fact your score can be as low as 580 in some instances. You don’t need to have a 700+ like a lot of people have in their heads. Of course the higher your credit score, the better your loan will be, but if you really want to get out of the Renting vs. Buying situation, you must call me to get your Total Cost Analysis for your specific situation. Don’t let what you think is bad credit stop you from buying your home. Trust me I’ve seen the worst of the worst credit and yours WILL NOT be the worst I’ve seen.
Renting Vs. Buying- Myth 3 “Homes Cost Way More Than Renting”
People think homes are going to cost them way more than what they are paying in rent. In some cases it could be better Renting Vs. Buying but let’s look at it. At the time of this article homes are probably at the highest costs they’ve been at in years. There is a shortage of homes and pricing have slowly increased. However with that shortage of homes, apartment owners and landlords have raised their rent as well. When was the last time you renewed your lease and the rent went down? Probably not in this decade…
Another thing to think about is what you actually get when you purchase a home vs. renting an apartment. On average in Dallas Texas a 1 bedroom apartment is about 700 sqft. The average rent is about 1000. That’s pretty steep for a 700 sqft. apartment. For $1000 dollars a month, you can land yourself in a decent home that is twice the size of your apartment, have your privacy and not have to worry about the kids blasting music through your walls or the neighbor above you doing insanity at 5 A.M in the morning.
Now let’s talk about what it costs you when you do continue to rent. Don’t worry this isn’t one of those if you don’t rent you’re throwing away money. Well sort of but I like to break it down for you and not make you feel bad because you don’t own a home. When you rent a home or an apartment, you are truly building someone else’s equity. What that means is by paying rent you are not wasting money. You’re keeping a roof over your head and a place to live, but you are not putting money in your own equity bank.
When you pay down principle on a home you are essentially putting money in your own bank account. If you home is 200K and you only owe 150k. You have access to 50K. This is how most normal people start building wealth. It’s their home… In the above example if things were to get really bad you could always sell your home and pull that 50k out. When you’re renting you’ve basically built that 50k for someone else. Now think about that number getting even bigger. The more you pay into it, the bigger that account will be. Now just ask yourself how long you’ve been renting. How much equity could you have?
Check Out The Video Below For A Better Example