Renting vs Owning – The Big Debate

Renting vs Owning – The Big Debate

There comes a time in everyone’s life where they have to make the ultimate decision and decide whether to buy and own their own home or continue to rent. It’s a huge decision as both have notable benefits and disadvantages and it is not one to be taken lightly. So lets have a look at these advantages and disadvantages to see which option is really the best option for you.

Owning your own home is the traditional dream that practically everyone has, especially when it comes to starting a family. It gives you a feeling that you have accomplished one of your goals and that you are both financially and emotionally secure as well as giving you a great sense of community. But is it the right decision for you? Lets have a quick look at the advantages and disadvantages of buying and owning your own home.

Advantages:

  • Set your own rules
  • Sense of security
  • A home is a great investment (long term, not for a quick turnaround, especially in todays market)
  • Get various sort of tax rebates and deductions
  • Repayment is usually the same or even lower than it would cost to rent – see example of my rent vs own comparison
  • You build equiry over time
  • Improve your credit score if you need a loan in the future

Disadvantages:

  • You are liable for any accidents and injuries on your property
  • You are liable for any damage to your neighbors house if stemmed from your property – for example a tree branch falling over the fence and damaging something in your neighbors yard.
  • Responsible for any maintenance in, on, or around your home
  • No longer can you just pack up your things and leave when you want. You’ll need to list and sell your home
  • Large loan responsibility even if you are having financial hardship
  • Required to have homeowners insurance to cover damages to the property
  • Responsible for property taxes
  • Requires an upfront down payment (VA and USDA are 100% financing products, if you qualify)

Renting is something most of us start out doing and many people are comfortable doing it all their lives. There are many advantages to renting a home but there are also a few disadvantages. Let’s have a look at them.

Advantages:

  • You can up and leave as soon as your lease it up
  • If you run into a financial hardship, you can move again
  • Little or no responsibility for maintenance
  • Sometimes utilities are included in the rent cost
  • Sometimes you have free use of amenities such as laundry, pool, and other sorts of actualities

Disadvantages:

  • Limited or no freedom to what you can do with the place (paint, design, build, etc)
  • Rent MAY increase
  • No tax deductions
  • At risk of being evicted
  • The house could be sold and you can be asked to leave
  • Could have restrictions on certain things like noise and pets
  • Could have restrictions on the number of members living in the house/apartment
  • Rent is not going into a productive investment for you

As you can see clearly there are many advantages and disadvantages to owning your own home and renting. Some have advantages and disadvantages the other doesn’t have, but both can be a comfortable way to live. When it really comes down to it you have to choose the one that suits you’re financial, emotional and lifestyle needs at this time. You have to take your future into account as well, will you want to be tied down and take responsibility for a huge investment or will you prefer the freeness of being able to move whenever you please?  It can be quite a hard decision to make and it is one that needs a lot of time and thought before you proceed to take any further steps.

When you call me, I take the time to evaluate your current financial status and together we can compare the pros and cons to owning a home. In addition, I take the time to complete a Total Cost Analysis. Together, we will find the program that works best for you and your family.

Texas Interest Only Loans

Interest-only loans in Texas are still around. Even though they are not as popular as they once were, they do still exist.
 
Over the past few years, they have been the topic of conversation. Many homeowners were placed into these programs without being told exactly what type of program that it is or without completely understanding them when they agreed to them. There are certainly benefits of Interest Only Loans when purchasing a home or refinancing, but there are also risks associated with them. 
 
* Please note that this product is available to anyone that qualifies but personally, I only recommend this program for someone that has a fixed monthly income with a potential of receiving a monthly or quarterly bonus. Or, someone that is paid on commission only.
 
Here are just a few of the benefits of interest-only loans:
 
– Smaller interest-only payments give borrowers with uneven income a greater degree of flexibility. The savings generated from interest-only loans versus traditional mortgages give borrowers greater control over their finances, freeing up more money for use in investments or catching up on other bills.
– Smaller monthly payments during the initial interest-only term allows borrowers to afford more home for the same amount of money, or less. Depending on your income, this could mean an increase to your purchasing power by $5,000-$30,000.
– Interest-only payments made during the initial loan term are entirely tax deductible.
 

The risks of interest-only loans:
 
– If home prices fall, borrowers could end up owing more money on a home than it’s actually worth. Unless the borrower makes payments against the principal, the home builds no equity aside from annual appreciation.
– After the initial interest-only period, the principal balance can cause monthly payments to skyrocket, especially if interest rates have increased.
– The minimum monthly payment option (available on some interest-only loans) doesn’t cover the total interest accrued for a given month.  The difference is tacked onto the balance, increasing the principal balance, which results in negative amortization. A negative amortization can erode existing equity already built in a home.
Understanding some of the benefits and risks associated with interest-only loans is imperative when searching for a mortgage that fits your needs.  If you’re looking into refinancing your mortgage or considering buying a home, you need a professional who will take the time to identify your financial goals, and who has the experience and the resources to help you achieve them.
 
Do not move forward with a Loan Originator that is trying to fit you into a specific loan program without telling you the pros and cons of that program. Ask questions to understand your mortgage options and why one program may be better than nother. There are many programs and options available, but not all of them will help you achieve your financial goals.

Texas Home Affordable Refinance Program HARP

Extension of the Texas Home Affordable Refinance Program HARP

Back on March 11, 2011, the Federal Housing Finance Agency announced two exciting changes to the Texas Home Affordable Refinance Program (HARP). This program is for Texas borrowers who have demonstrated an acceptable payment history on their Texas mortgage, but due to a decline in Texas home prices or where mortgage insurance is not available, have been unable to refinance to obtain a lower payment or move to a more stable Texas mortgage product. Here is a quick re-cap of the changes:

 

The program has been extended by one year. Texas lenders can continue to originate HARP loans provided the note date is on or before June 30, 2012.

The program has been expanded, and more Texas loans will now qualify for the program. Previously to be eligible for a HARP loan, the existing Texas loan had to be purchased by Fannie Mae or Freddie Mac prior to March 1, 2009. This date range has now been expanded to include Texas loans purchased by the agencies prior to June 1, 2009.

This means that people who may not have been able to take advantage of a HARP Texas refinance in the past may now be able to do so.

USDA Rural Development Loans Will Have Monthly Mortgage Insurance

USDA Will Have Monthly Mortgage Insurance Starting October 1, 2011

USDA Rural Development and its loan program were designed to help improve the economy and quality of life throughout rural America. The program continues to remain a wonderful option for qualifying homebuyers, with zero down payment required.

But a change is coming!

Beginning October 1, 2011, for the first time in the history of USDA, the Single Housing Guaranteed Loan Program will have an annual fee. This fee will be calculated based on the guaranteed loan amount and based on the average annual scheduled unpaid principal balance for the life of the loan.

If you’re thinking of purchasing a home and you’re wondering if you may qualify for a USDA loan, give me a call right away. Home loan rates are still very attractive. Let’s see if this program is right for you…before the October 1 fee begins.

FHA MIP Changed Effective April 18, 2011

FHA MIP Changes Effective April 18 2011 

Its only a week away for yet another change which will effect homebuyers in Frisco Texas.

A few weeks back, it was announced within HUD Mortgagee Letter 2011-10 that there would be an increase in the Annual Mortgage Insurance Premium for all new FHA Case Numbers assigned on or after April 18, 2011.

If you recall, there were changes to the Mortgage Insurance Premium back in October 2010 which changed the UFMIP (UpFront Mortgage Insurance Premium) from 2.25% to 1%. That was great news, except that the Annual Mortgage Insurance Premium increased from .55% up to .90% (depending on the Loan To Value ratio).

So, how will this new change effect Homebuyers as of April 18th? Well, the good news is that the Upfront Mortgage Insurance Premium will not incease. It will remain at 1% of the Loan Balance.

The change is specific to the Annual Mortgage Insurance Premium which is increasing 25 BPS (or .25%). Below is a snap shot from the Mortgagee Letter 2011-10:

For a homebuyer, this means that your payment is going to increase on a monthly basis. If your principal balance is $180,000 with a 96.5% Loan-to-Value, your MIP payment would increase from $135.00 a month to $172.50 ($37.50 extra per month).

If you have would prefer not to have your payment increased, you only have two options. The first option is to have an offer accepted and your mortgage loan originator to create a FHA Case Number prior to April 18th. This is only suggested IF you already know the house of your dreams. Do not feel rushed to make a decision.

The second option is to look for a home that is slightly less costly. For example, instead of a home for $180,000, you could choose a home for $172,800.

This scenario may not fit your specific Texas home loan. Feel free to contact me to discuss your financial situation further.

Additional Principal Reductions… why its worth it.

You heard the radio adds, the television commercials, and your neightbor talk about the mortgage rates being at an all time low. Then you called your local mortgage company only to find out the rate was not much better than your current rate. Now what? Don’t worry, you still have options and it wont take a refinance to do it.

Did you know that most mortgage companies will allow you to make additional principal payments on your loan balance? Perhaps you receive a larger than expected tax return, an inheritance, a non-taxable cash gift, or that work bonus you were not expecting. You could apply this money toward your loan principal which result in a signicant savings and shorter loan life.

For this example, I am using a loan balance of $150,000, a rate of 5.0%, and a 30 year fixed rate mortgage. Please note that these examples are useful on Conventional, FHA, and VA loan programs. The only time this will not apply is if you currently have an Adjustable Rate Mortgage.

Based on the above numbers, your mortgage payment (principal and interest only) would be $805.23 per month. If you made each payment on time, with no additional principal, then at the end of 30 years, you will have paid $289,885.27 in payments ($139,882.27 in interest).

Does your budget allow for you to make one additional mortgage payment per year ($805.23 per year) which would be applied directly toward your principal? If so, you would pay off your mortgage in 305 payments (25 1/2 years). This is a savings of $$24,524.59 in interest. Think you can save $805.23 a year? No? How about if you broke up the $805.23 in 12 easy installments?

Look over your budget and see if you could afford $67.11 per month to add to your mortgage payment. By making this additional principal payment each month, you have increased your overall savings to $25,453.13. Your mortgage would be paid off in as little as 303 payments (25 years, 3 months).

All of this without spending ONE DIME on refinance fees. If you already have a great rate, but would like to pay off your mortgage sooner, this is the best way without refinancing to a shorter term. For best results, apply principal reductions more often rather than making one time payments each year. If making a principal reduction once a year, or once every 5 years is your only options, still do it. The reduction should still save you thousands of dollars in the long run.

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If you live in the state of Texas and are looking for a reliable Mortgage Professional to assist you with the loan product that best fits your financial situation, give me a call. We do not charge upfront fees to run scenarios or charge unnecessary application fees.

Do you want to know all of your options? Call me today and let’s discuss them further.

Always available for your Frisco Texas Mortgage needs!

John Cannata  Legacy Texas Mortgage p# 214.728.0449

www.JohnCannata.com

Frisco Texas Mortgage Consultant

Why Should I Refinance My Home?

I receive this question quite often – Why Should I Refinance My Home?  Whether you live in Texas or anywhere else, this is a valid question.  Don’t just rely on anyone answering this question, you should consult a professional.  Refinancing your mortgage is a big step, but how do you decide when to do it?  I like to give my clients some tips to help them decide when the time is right for them.

Its no secret.  Everyone has been talking about the rates – “The rates are at an all time low.” or “Rates are at historic lows”.  This is probably the first reason my clients decide to refinance.  They hear it enough and want to know if refinancing would result in a lower monthly payments. Generally, if rates drop 1 percent or more – it’s a good time to refinance.  But lowering your rate is not the only reason to refinance your home.

Perhaps you were thinking about refinancing because you need extra money.  College tuition or a high interest credit card?  When refinancing to a lower rate and payment the money you save can be spent elsewhere.

One of the best reasons to refinance is because a client wants to reduce the term of their loan.  Many of my clients refinance to save money over the life of their loan. For example, if you currently have a 30-year loan and you refinance to a 15-year loan, after you refinance you may have a higher monthly payment but you will pay off your loan quicker.  I recently refinanced my home to a lower rate and shorter term.  The payment is slightly higher, but I am saving over $122,000 in interest.

Do you have an Adjustable Rate Mortgage (ARM)?  I strongly recommend refinancing if you have an ARM loan.  Convert it to a fixed rate loan.  Right now, fixed rate mortgages are lower than adjustable rates and a fixed rate mortgage leaves out the ‘element of surprise’ when the adjustment happens every 6 months to 1 year.  If the rates are lower than they were when you got your loan, switching to a fixed rate mortgage can offer more security and stability as well as save you money!

The last reason some clients look to refinance is to consolidate debt.  Loans such as second mortgages, credit lines, student loans and credit cards can often be consolidated when you refinance.  In Texas, we do have regulations for completing a Texas Cashout.  I’ll be putting a post together for those as well.  Watch for them on my outside blog www.FriscoTexasMortgage.com.  Plus, consolidating your debt can result in tax savings, since consumer loans are not tax deductible, but a mortgage loan is tax deductible.  For a better understanding, please consult a Tax Advisor.

Fortunately, rates are still low today, but no one knows how long they’ll stay that way. If you’ve been thinking about refinancing your mortgage, give me a call today. I’ll work with you to find a great rate so you can have more money in your pocket in 2009!