Many factors impact the decision to buy or rent a home. As the housing market changes in different communities, this decision becomes increasingly difficult.
We hear Realtors say that now is the time to buy; mortgage rates are low, demand is high and values will increase.
Yet the numbers of people in homes with an upside-down mortgage is high, making it impossible for many to even consider selling their home, let alone buying a new one.
This is one of the more difficult questions to ask in today’s economy. Many who lost their homes and now have to rent face two major hurdles. And depending on how you lost or may lose your home can make a big difference.
First, if you went through a foreclosure, coming back will be more difficult, credit-wise, than if you work with your bank and do a short sale. With a foreclosure, you simply vacate and/or are removed from your house by the bank.
In a short sale, you typically work with an attorney and a Realtor to make sure things are done in your best interest and you eventually sell your home to the highest buyer possible.
The benefit to a short sale, if done properly, is that you can stay in your home while trying to sell it. If you are upside-down on your mortgage, you will end up getting less than you owe, but if you negotiate effectively, you may get the deficiency waived by your bank or at least reduced significantly to a small, no interest note.
Either way, losing your home will most likely lower your credit score and could hinder you from getting a lease unless you come up with a hefty security deposit. If you want to purchase another home, your credit score and lack of a 20 percent down-payment could also hinder you from obtaining a conventional loan.
If you intend to get another loan someday, the short sale will be looked upon more favorably than a foreclosure.
Many homeowners who rent out their residential real estate today are charging much higher rates, even more than what it would be if you where to buy (it’s called supply and demand). Because of such high inflation on the residential rental market, many that are forced to rent have to pay much higher rental fees than ever before. It is really a nightmare.
Many homeowners who rent homes that are small and run-down are demanding much higher rental fees than they have been able to in the past, and guess what? They’re getting them.
Even though now may be a good time to buy because interest rates are at an all-time low and home values have come down, many people just can’t qualify for a loan.
Seniors are especially caught in this “good time to buy” and lacking the money to put down. Even though many seniors believe that renting is just throwing their money away, they have had to bite the bullet and pay higher rental fees. As I said before, it is really a nightmare.
The final decision must rest on two factors. First, how much can you afford to pay each month? And second, do you have enough saved to put down 20 percent, and is your credit score and provable income high enough to obtain a conventional mortgage?
If the answer to the second question is “no,” you just might have to continue renting.
I have had this conversation about buying versus renting with many clients. My answer is always the same: if you are buying, make sure you get a good deal, that you plan to keep the house it for at least four years, and that the property or neighborhood is in demand.
If a lot of people cannot qualify for a mortgage any longer, it cuts down the demand for homes. This means houses do not move, which will keep prices from rising quickly.
If you go the route of buying a home, treat it just like any other investment and do your homework.
Since this is political season in America, I would be remiss not to comment on the politics of buying a home. Members of both political parties have stated that a flat tax is a better tax code, thus removing many of the so-called tax loopholes. One of those loopholes is getting a deduction for interest paid on home loans.
Information in this column is not intended to be specific advice for anyone. You should use the information to help you work with a professional regarding your specific financial objectives.
Capt. Mark A. Cline is a chartered senior financial planner. Comments on this column are welcome at +1-954-764-2929 or through www.clinefinancial.net.