Pam Etuglavu's Financial Advice

Buying a home or renting?

There are a lot of factors that go into the decision to buy a home. No one can tell what lies down the road as far as family, work and finances are concerned, but we can assist you in understanding what you're getting into. Before deciding whether to rent or buy, ask yourself whether buying makes sense for you. If it does, you need to figure out how much home you can afford to pay for.

Renting vs. owning

If you're looking for a return on your investment, you would be better served by playing the stock market. Homes don't realize as much of an ROI as stocks or mutual funds, which typically realize an 8-10% return. However, the US government allows homeowners to partially deduct part of their real estate taxes and mortgage interest every year if they pay enough to surpass the standard deduction.

The Pros of Homeownership

Homeowners enjoy other perks as well. They can build equity as home values increase and mortgage balance declines. They also are free from worry over rising housing costs, because their interest rate and payment will stay the same unless they have an ARM (adjustable rate mortgage).

The Cons of Homeownership

Unlike renters, homeowners are responsible for all repairs. If you put all your money into the down payment, you might not be able to afford to fix things up. There are other reasons why potential homeowners might want to wait, such as if they may lose their job or relocate soon. Monthly payments aren't the only obstacle for budget-conscious customers;closing costs and other fees add up quickly.

Explore the Alternatives

Some approaches blend aspects of renting and buying a home. Lease with option to buy and contract for deed plans are becoming more and more popular. In seller financing, the seller lends the buyer part or all of the home's amount. This approach reduces the amount of money needed to buy a home, and helps to reduce closing costs.

However, the seller gets to set the interest rate for that portion of the mortgage, and it typically has a shorter term and ends with a balloon payment.