“Why would you buy a home when you can rent?”

asked a friend of mine not long ago. “Buying is so over.”

I do a lot of research to make sure I find the best topic that help me find the right relationship between money and happiness.

These days I asked myself if do renting make sense, or if better do renting than buying. That is why I went to read through several articles and I found it pretty interesting, so much that I decided to blog about it.

Well, after my research I fortified some of my convictions about the fact many folks are prefer renting than buying. Sure, for many people, buying a home is the way to go, and, of course, owning a home gives you stability, but financially I don’t believe that’s necessarily the best choice anymore.

There are different factors that determine because renting is better than buying, particularly how long you stay in your home and how rents and fast prices rise.

Now another important factor that you have to consider is P/R ratio:

To find this value, follow this step:  Research two houses, condos or apartments with similar features. Make sure that one is for sale and the other for rent. Now, take the price of the house for sale and divide it for the annual rent of the other. As result you get the P/R ratio.

For instance, imagine you’re looking on your neighborhood an apartment and find one at $200000 for sale. Near this apartments you find a similar one for $1000 for rent. Now, by dividing the sale price of the first, $200000 by the annual rent of the second one(which is $12,000 per year) you’ll get the P/R ratio value.

Instead of playing with numbers, I want to tell what this number really means. According to David Leonhardt

“A rent ratio above 20 means that the monthly costs of ownership will exceed the cost of renting.”

But what does really this mean? Price-to-rent ratio (or P/R ratio) give you a rough idea whether homes in your area have an affordable priced and right for your pockets. In other words, the more high P/R ratio is, the better is to rent.

During the housing bubble, this value came close to 20, so you could rent a $200,000 house for $800 per month or $10,000 a year, not bad right?

Below, I’ve put some thing you need to know which differentiate Buying by Renting

Buying – Home purchase closing costs includes the down payment and closing costs. Yearly costs includes mortgage payments, renovation costs, homeowner’s insurance, condo fees (or other community living fees), property taxes, maintenance costs.

Renting - Initial costs are the rent security deposit and, if applicable, the broker’s fee. Yearly costs are the monthly rent and the cost of renter’s insurance.

Lost opportunity costs are calculated each year for both your initial costs and your yearly costs.

Leaving your rental is equal to the rent security deposit, typically returned to a renter at the end of a lease.

Renting

Pros

• Flexiblity (can relocate easily) Can invest money elsewhere (stock market) inflation
• Save money on upkeep fees. No need to spend for broken dishwashers, drippy faucets, and so on.

Cons

• No equity, Annual rent increase could outpace

Buying

• Tax-break: deduct mortgage interest and property taxes
• Potential tax-free capital gain

Cons:

• Property tax and upkeep
• Mortgage costs
• Emotional satisfaction Less flexibility should you want to move; in very bad housing markets, you could lose principal

You can also evaluate the cost of housing by comparing it to your family’s income.

Consider that during the early 1970s average cost of home were about 2,3 times the median yearly family income, while from 1984 to 2000 this ratio were three times. During the housing bubble, the value jumped to 4.2.

These numbers may give you some sort of idea whether housing is overpriced in your area. So, if a family makes $80,000 a year, it can afford a home of $200,000.

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There are people that consider a type of loan called “Reverse Mortgage” that allows them to getting cash, quickly.

What is a reverse mortgage or lifetime mortgage? In a nutshell, is a loan used by people that are own a home and generally available to those age 62 and older, and allows them to convert some of their home equity into cash. In this case the lending institution is making payments to you(makes a check out to the homeowners each month), rather than make monthly payments to your lender.

This payment is really a loan against the value of a home. When you sell your home through a reverse mortgage, the money is paid back with interest.

Also, when you get in a reverse mortgage, you need to be older and your home should be the more valuable as possible. These are two important points to consider before ask for a reverse mortgage, especially if you want to get lower interest rate, then borrow more money.

Why People Ask A Reverse Mortgage To Get Money Borrowed?

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A reverse mortgage become useful for those people who no have money to pay for debt, medical costs, household bills, home repairs, and so on. Money obtained through a reverse mortgage loan can be paid out in regular payments, as a line of credit, or as a lump sum.

If a common mortgage loans can influence your credit history, a reverse mortgage does not matter with it. Also, money from a reverse mortgage loan aren’t an Income that is taxable. Of course, the requirements are that your house must be your primary residence, not vacation homes.

A reverse mortgage will not interfere with Medicare. One person that receive a Medicare payments, are elegible to take a reverse mortgage. On the other hand, if you receive money from a reverse loan you may not getting Medicaid.

However, there are some exception.

For example, if you spend the reverse mortgage you received in the same calendar month, you can receive Medicaid. But if in the same month put some of it into your savings account, than you wouldn’t be able to receive Medicaid, according to the National Reverse Mortgage Lenders Association

Conclusion

Of course, anyone who really has a problem on managing their money or spending a large sum of cash could remain without enough money for basic living expenses later on. So, here, you can find free or low-cost counseling that can be done in person or by phone.

When you decide to pay for a home, you think that it should worth his price, right? Sure, it could be true, but it’s not really so.

When a lender provide loans to others, wants to be sure that the value of home sold is enough to repay the loan. Lenders no more trust in people, and learned the hard way that they have to consider any risk before deciding how much to lend for a property.  Lenders learned that they don’t just have to worry about the present, but they need to worry of the future, as well.

Image Credit: Brishroyer

Today lenders check the housing values and trends where the property is. Several things might alter the value of your property. For instance, if your property overlooks a park, beach, if you live in a tract and everyone pretty much has the same floor plan, if your street has a view on the center city, and a convenience store, and so on. In these case, you get an higher value because your view increase your home worth more. This fact could create problems for you, if your positon is not privileged.

Other factors can increase your appraised value, for instance, if you have made certain home improvements. Most experts say that taking care of any maintenance should be top priority. Renovating an old kitchen, adding a new room because you needs, can improve the value of your property. Also, If you live in mansion territory you can add a beautiful park, with decor in stonework.

In general, your home will be valued two ways. The first estimated cost including the value of the lot, the second including the improvements to the property, and minus any depreciation.

Often, the home appraisal for the home you buy don’t have exactly the price you paid for it. There are unscrupulous appraiser that can give incorrect value to homeowners and lenders. Today, the mention of the appraiser being required to be completely separated from the borrower and lender.

For this purpose, today’s Home Valuation Code of Conduct (HVCC) says that appraisers are engaged by appraisal management companies that have no relationship to anyone who stands to gain financially from the transaction.

So, I reccomend you to ask questions constantly and keep your eyes open during the house buying process.

It is known that buying a home, is the most biggest purchase ever made by people. You can get things just right, but also risk to pay more than you have to, with a lot of pressure from the bank.

The first thing you need to know when you ask for a mortgage loan is the terminology. Many people that buying a home for the first time couldn’t understand every mortgage terminology.

Thus, here I’ve put some basic mortgage terminology that you need to know before to take a decision.

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1. Mortgage term – Is the number of years or months you have to pay off your loan. More longer is the time you have to pay off your best mortgage, the lower the payments will be.
2. Rate – Is the interest rate, in a nutshell how much money you will be paying the bank to borrow money from them. Rates changes according to  the loan program and depends on your credit rating, how much is the value of the home you’re buying, how much money you are able to put down. Usually, the shorter term, the lower the interest rate.
3. Mortgage Broker – A mortgage broker acts as an intermediary who sells mortgage loans on behalf of individuals or businesses. When become hard to find the financing, a mortgage broker can be the ideal solution for you. There are many websites use these intermediary to help you find a cheaper rate, shorter term and, so on.
4. Paying off your mortgage loan – If you pay your first home for 30 year term it seems you’ll be paying for your home forever. There are way to shorten your mortgage term without refinancing. If you have extra cash on hand you make one extra full payment a year. By doing this simple charge, you reduce your loan term by years.

When I look for financial mortgages, these five factors are most important to me:

1. Good rates. When you choose a lender, getting a great mortgage rate is one of the the top factor to consider. Many people ignore that even a small change in interest rates can make an enormous difference in the monthly mortgage payment — and, especially, the total cost over the life of the loan. but it’s not the only factor.
2. Low fees. Also, many people ignore that the fees each lender charges can have a significant impact on the cost of a mortgage. This because the cost of the mortgage is so large in comparison the cost of fees. Be sure to get a good estimate whenever a lender or broker provides a quote
3. Before buying a new home – Check the type of home you can afford. Then, check what price range you can afford.
4. Healthy Credit Scores – To determining your home loan availability,  an excellent credit score must be the main factors to consider.
5. Creative Financing – Instead of settle for conventional loans you can get other ways to finance a new home loan. Some lenders might be willing to finance the down payment for you as well as the closing costs.

What Is GetSmart?

GetSmart is a leading online financial marketplace, founded by a group of former bankers. They provides a simple, secure way to save money for savvy consumers — fast. They simplify your life, through two-minute form that immediately matches you with up to four high quality Lenders.

GetSmart provides a range of loan services, including mortgage loan, refinance loan, free credit report and home loans. And the best thing is that it’s completely free:

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Once you complete an easy 2-minute form they’ll give you instantly with up to 4 competing lenders from their network of more than 200 Lenders across the nation. They can match you with Lenders that have great rates and some of the best home loan products available.

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