Renters_ Are You Ready to Buy a Home_

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Understand the full cost of homeownership As a renter, a single rental fee covers your monthly housing payment. But as a homeowner, four main factors go into your monthly housing payment: principal, interest, taxes and insurance (P.I.T.I.). Understanding these costs will help you determine how much house you can afford. Together, principal and interest comprise your monthly mortgage payment, with the principal paying down your loan balance each month, and the interest paying your fee for borrowing the money. Use a mortgage calculator to determine how much of your payment goes toward principal versus interest each month. Taxes refer to property taxes, which are assessed by the county you live in. They average 1.2 percent of your home’s value each year. Insurance — paid to a homeowner’s insurance company of your choice — is required when you have a mortgage. Lenders require that your insurance cover the cost of rebuilding the home if it is ruined by fire or other disaster. This “replacement cost” is determined by your insurer, and must be agreed to by your lender. Insurance will typically cost $700 to $1,200 per year for a single family home. For condo owners, there’s a fifth monthly cost category: homeowners association (HOA) dues. These fees cover common area amenities, landscaping, ongoing upkeep and reserves for future maintenance like roof replacement or exterior painting. These monthly dues range from $100 for cheaper condos to $1,000 or more for luxury condos. Single family home buyers can take a useful cue from HOA budgets, which generally require that at least 10 percent of dues go toward reserves. Even if you’re not buying a condo, it’s a good idea to set up a similar savings plan for future maintenance like replacing a roof or major appliances.
interest and property taxes are deductible when you file your Mortgage tax returns, and reduce taxable income. annual deductions significantly lower your cost of homeownership. For These for a $300,000 home with 20 percent down and a 30-year fixed example, at 4 percent, monthly P.I.T.I. is about $1,545. Tax deductions mortgage this total housing cost to about $1,215. reduce people judge the cost of renting vs. buying by comparing P.I.T.I. to a Often, payment. But to get an apples-to-apples comparison, you actually rental the example above of a $300,000 home that costs $1,215 per month Using taxes, you could compare this residence to a home that rents for about after If the $300,000 home was more spacious or in a more desirable $1,200. the math would seem to favor buying — but don’t forget this example area, you don’t have 20 percent to put down, you can still get a mortgage with If little as 3 percent down. However, if your down payment is less than 20 as you’ll have to pay mortgage insurance, which is about .85 percent percent, your loan amount, and isn’t tax deductible. of monthly P.I.T.I. (which includes mortgage insurance) is about $1,995 on Your $300,000 home with 3 percent down and a 30-year fixed mortgage at 4 a After tax deductions, this total housing cost drops to about percent. And you’d only need $9,000 for the down payment. $1,614. can also lower your rate and P.I.T.I. with a shorter-term loan like a 5-year You but rates on these loans will adjust in 5 years, so you risk having a ARM, higher payment if you plan to stay in the home longer than that. much preparing your credit score now Start scores are critical for getting the best mortgages with the lowest Credit Lenders want reliable on-time payment history as well as credit depth. rates. credit accounts are better, so renters with only one credit card should More obtaining more credit. Just note that your credit score can drop 5 consider 15 points when you first open a new account, then will come back up to you’ve established a good payment history. when Know your homeowner tax benefits Study rent-vs.-buy math have to look at after-tax-benefit homeownership costs and rent costs. requires a $60,000 down payment. Identify mortgages that fit your budget and timeline https://www.zillow.com/blog/renters-prepare-to-buy-a-home-167285/ https://artesiantitle.com/
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Renters_ Are You Ready to Buy a Home_

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