Think ahead….

There are many valid reasons why people choose to either rent or buy a home.  But the financial reason(s) may tip the scale in your decision. Neither is ‘right’ for everyone.

Renting is when you pay a landlord to stay in their property.  When you move out, you take your belongings.  The money you spent for rent is gone…. it went to pay the mortgage of the landlord.  During your stay, the upkeep of the outside of the property, as well as if there is a problem with plumbing, appliance replacement etc, is the landlord’s responsibility.

Buying is more long term… All upkeep of the property inside and out is your responsibility. By paying your mortgage, a part of it goes toward equity, and when you move out (sell), you get to keep the equity accrued, plus any money over the cost of your purchase, minus what you still owe the mortgage lender. You almost always will walk away with money in your pocket.

You have to factor in several things when making this decision….but financially, you’d need 20% plus for a down payment. Less than 20% means you’d have to pay a monthly mortgage insurance premium in addition to your mortgage.  This is in case you default on payments, the lender is covered.  So, until you have 20% to put down, it is best to rent and keep saving.

You may have to set your sights on a smaller home to start with, and in 7-10 years, sell it and if you still want that larger home, you’d have some equity in the smaller one, plus the difference between what you purchased the home for, and what you sold it for.  This may be enough to put a 20% down payment on the larger one now.  Then again, maybe you’ve learned to simplify, and are very happy in the smaller one.

When you rent, you pay the figure the landlord says.  Sometimes, if you shovel or mow or help with upkeep in some way, you can dicker the figure some.

When you buy, you pay PITI (principal, interest, taxes, insurance) to the lender, the figure is dependent on your down payment, interest rate, city taxes, and homeowners insurance.  However, you do have some options to help you out there……  Insurance and city taxes are set by those affiliates, and can change slightly over time. The interest rate is figured by your down payment, your credit score, and amount of the loan. The principal and interest figure stay the same unless your refinance. This can be done, but there are charges, and should be discussed with your lender.

The principal can most definitely be helped ….. by you.  The principal is the figure you borrowed to pay for the remaining cost of the home.  You want this figure to lessen, and it will …. a little each month is taken from your mortgage payment.  As time goes on, that figure will be more each month…. this goes towards your equity. The easiest and free way to do this is …….

When you get a 30 year mortgage, there are 12 (full) monthly payments each year for 30 years.  But if you call and have the lender change it to a bi-weekly payment schedule, the payments are spread over the same 52 weeks, but 1/2 the mortgage payment is made every 14 days (every 2 weeks)….  52 divided by 2 is 26.  There will be 26 (half) payments in each year…. 2 of those payments, usually one in the Spring and the other in the Fall, will go directly, and in full, towards lowering you principal (into your equity account).

If you start this at the beginning of your loan term, you will knock off 2 1/2 years off the length of your loan, and….. you will save thousands of dollars on the cost of interest at the same time.  It only takes a phone call to set it up.  Set it up any time during the loan, every bit helps.

And, of course, you can…. always…. pay extra towards your principal.  Just remember to tell the lender that it goes only to the principal. Doing this also lessens the balance of your loan, as well as saving the interest paid by you for that amount.  A good thing!

So make a list of pros and cons for each before deciding.