1. Renting Vs. Buying a Home

2. Scenario
A renter starts out paying $800 per month with annual increases of 5%. A homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000
With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years.
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3. You should buy a house if…
You have a secure job and income
You plan to live in the house more than a few years
You have enough money for a down payment
You can afford the monthly payment (not to exceed 35% of your gross income)
Source:

4. 4 Advantages of Buying a Home
Building Equity – as you pay down what you owe and the value of the property increases, you earn equity. Equity is the value of the house minus what you owe.
Savings on Taxes – On your taxes, you can deduct mortgage interest and property taxes.
Improvements – As a homeowner, you can paint, landscape, and improve your home to your liking.
The American Dream – pride of ownership

5. 4 Disadvantages of Buying a Home
Maintenance – You pay for all repairs
Rising cost of: Insurance, HOA fees and property tax (property taxes vary by location)
Selling – Having to sell if you move and paying for realtor fees and closing costs
Liability – If something happens on your property, you could be sued for damages

6. 4 Advantages of Renting
Maintenance – The owner of the home/apartment pays for maintenance.
Predictable Costs – You will know the exact cost of rent for the period of your lease.
Flexibility – At the end of your lease, you can move easily without having to sell your home.
Temporary – Over time, you can live in many different places without being tied down to a home.

7. 4 Disadvantages of Renting
No Tax Benefits – You cannot write off taxes and the interest on a mortgage
No Equity: You did not benefit from the value of the house/apartment going up
Rent Increases – Your rent could increase at the end of your lease.
Not Permanent – At the end of your lease, the property owner may not renew it.

8. Equity Example
You buy a house for $250,000. You put $25,000 down and take out a loan for the remaining $225,000. You make payments for 10 years which reduces the amount you owe the bank. You now owe the bank $160,000 instead of $225,000. The value of your house has risen to $375,000 in those same 10 years.
$375,000 (the value of your house)
-$160,000 (what you still owe the bank)
$215, (your equity)

9. What is equity good for?
Now you are married and expecting a child. The house you bought 10 years ago is not large enough for your growing family. You can now sell your house for $375,000. The realtor’s fees and closing costs add up to $30,000.
$375,000 (the value of your house)
$30,000 (realtor’s fees and closing costs)
-$160,000 (what you still owe the bank)
$185, (profit)
You can take the profit from the sale of this house and use it as a down payment to purchase a larger house without raising your monthly mortgage payment!

10. Down Payments
Typically 20% of purchase price though smaller down payment options may be available (i.e. 3% of purchase price)
Example: You want to buy a house that costs $300,000. A 20% down payment would be $60,000. A 3% down payment would be $9,000.

11. Mortgage Payments
Should not be any more than 35% of your gross (before tax) income.
Example: You make $12.00 per hour working 40 hours per week which equals about $2,080 per month (gross). You can afford a monthly payment of $582 per month.
Payments include principal, interest, property tax, homeowners insurance and PMI

12. Adjustable-Rate Mortgage
2 Common Mortgage Types
Fixed-Rate Mortgage
Adjustable-Rate Mortgage
Interest rate cannot increase
Payments are predictable
Interest rates could go below your set rate
Interest rate can increase or decrease
Rates may be low for only an initial period
Monthly payments may initially be lower than fixed-rate loans, but can increase significantly

13. 15 Years or 30 Years? 15-Year Mortgage 30-Year Mortgage
Borrow less money because of larger monthly payments
Build equity faster
Less interest to pay
Lower interest rate
Borrow more money because of lower monthly payments
Build equity more slowly
Can deduct more interest from income tax
Higher interest rate

14. On Your Own