Rent or Buy?

[Schneed10]

TAFKAS,
Always buy if you can swing it. You will be able to deduct the interest you pay on your mortgage, giving you a bigger tax return each year. You will build up equity on your home which you will retain when you sell your home. And as your home appreciates, you take all the profit.

Here is a table showing what your monthly payments would be if you bought a home. So the monthly payment on a $100,000 mortgage is about $600. Now you'll have a monthly escrow payment in addition to that. Escrow typically covers your homeowner's insurance, real estate taxes, township fees and other crap like that.

$ Borrowed - Mortgage Payment - Escrow - Total Monthly
$100,000 - $600 - $150 - $750
$120,000 - $720 - $200 - $920
$140,000 - $840 - $250 - $1090
$160,000 - $960 - $300 - $1260
$180,000 - $1080 - $350 - $1430

Lenders have all kinds of options for you. You may be able to get 100% financing, meaning you won't need to make any down payment. Or you can put 5% down, or if you can put 20% down you'll get the cheapest rate/PMI expenses. Thing is, in addition to the down payment, you will have to pay "closing costs" on the transaction up front. This means that even if you're making no down payment on the home, you'll have to pay $3000 - $10,000 (depending on the price of your home) in closing costs. There's no getting out of closing costs, at least not to my knowledge.

If you're going to buy, make sure you shop around for a mortgage company with low closing costs, there are a wide range. A lot of the times, smaller mortgage companies have to hit you with bigger closing costs to help cover their expenses. A bigger mortgage firm can offer lower closing costs. I went with Chase, I was pleased with them. Plus with a big company like that, you know they won't sell your mortgage to another bank or something crazy like that. Canthetuna can probably shed more light on mortgage companies since his wife does that stuff.

[That Guy]

Originally Posted by Schneed10

TAFKAS,
Always buy if you can swing it. You will be able to deduct the interest you pay on your mortgage, giving you a bigger tax return each year. You will build up equity on your home which you will retain when you sell your home. And as your home appreciates, you take all the profit.

Here is a table showing what your monthly payments would be if you bought a home. So the monthly payment on a $100,000 mortgage is about $600. Now you'll have a monthly escrow payment in addition to that. Escrow typically covers your homeowner's insurance, real estate taxes, township fees and other crap like that.

$ Borrowed - Mortgage Payment - Escrow - Total Monthly
$100,000 - $600 - $150 - $750
$120,000 - $720 - $200 - $920
$140,000 - $840 - $250 - $1090
$160,000 - $960 - $300 - $1260
$180,000 - $1080 - $350 - $1430

Lenders have all kinds of options for you. You may be able to get 100% financing, meaning you won't need to make any down payment. Or you can put 5% down, or if you can put 20% down you'll get the cheapest rate/PMI expenses. Thing is, in addition to the down payment, you will have to pay "closing costs" on the transaction up front. This means that even if you're making no down payment on the home, you'll have to pay $3000 - $10,000 (depending on the price of your home) in closing costs. There's no getting out of closing costs, at least not to my knowledge.

If you're going to buy, make sure you shop around for a mortgage company with low closing costs, there are a wide range. A lot of the times, smaller mortgage companies have to hit you with bigger closing costs to help cover their expenses. A bigger mortgage firm can offer lower closing costs. I went with Chase, I was pleased with them. Plus with a big company like that, you know they won't sell your mortgage to another bank or something crazy like that. Canthetuna can probably shed more light on mortgage companies since his wife does that stuff.

those payment figures are on the money... a fixed rate loan is usually the best bet, since it can never go up and you can always refinance if the fed rate goes down. (and getting a place, i get calls for a 1.25% refinance all the time, problem is its 1.25% for 6 months then jumps to 7-10% and can't be paid off early - ALWAYS ignore those calls, its indian call centers being paid to look for suckers)

sometimes sellers will pay closing costs (not usually in a sellers market though) and the buyer just pays more into the price (this is another thing you can add to the contract but it'd make it less likely to win in a competition)...

[Schneed10]

Originally Posted by That Guy

those payment figures are on the money... a fixed rate loan is usually the best bet, since it can never go up and you can always refinance if the fed rate goes down. (and getting a place, i get calls for a 1.25% refinance all the time, problem is its 1.25% for 6 months then jumps to 7-10% and can't be paid off early - ALWAYS ignore those calls, its indian call centers being paid to look for suckers)

sometimes sellers will pay closing costs (not usually in a sellers market though) and the buyer just pays more into the price (this is another thing you can add to the contract but it'd make it less likely to win in a competition)...

Agreed. In the mortgage business, if it sounds too good to be true, it ALWAYS is. There are lots of creative ways to finance a home at a very low rate initially. That initial rate is the one mortgage companies will advertise, but the rate will change on you. This type of financing can be good in certain situations, but you really have to make sure you identify the risks. Like if the rate is set to jump up to 10% after 5 years, then the deal may make sense for you if you're CERTAIN that you'll move within 5 years. But if you don't move, and you stay past 5 years, you get crushed with that 10% rate (or you're forced to refinance). I prefer a plain, vanilla, 30-year fixed mortgage. You know exactly what you're going to be paying as long as you own the house. Lots of stuff can happen in life: getting laid off, spouse dying (God forbid), taxes raised, etcetera. I'd rather know what my payment will be.

[EternalEnigma21]

Originally Posted by Schneed10

Agreed. In the mortgage business, if it sounds too good to be true, it ALWAYS is. There are lots of creative ways to finance a home at a very low rate initially. That initial rate is the one mortgage companies will advertise, but the rate will change on you. This type of financing can be good in certain situations, but you really have to make sure you identify the risks. Like if the rate is set to jump up to 10% after 5 years, then the deal may make sense for you if you're CERTAIN that you'll move within 5 years. But if you don't move, and you stay past 5 years, you get crushed with that 10% rate (or you're forced to refinance). I prefer a plain, vanilla, 30-year fixed mortgage. You know exactly what you're going to be paying as long as you own the house. Lots of stuff can happen in life: getting laid off, spouse dying (God forbid), taxes raised, etcetera. I'd rather know what my payment will be.

Well if you opt for a low rate intrest only loan through a reptuable lender, they will put a life cap on the loan usually arount 2% through the short term. (meaning a 3yr arm, the intrest rate wont go over 2% above the original rate) at the end of the 3 yrs (or 1yr or 5yrs depending on the term u decide on), you do refinance, but what you're banking on is building equity in the house during those 3 yrs and then at the end of the three yrs applying that equity towards your refinancing. This option is great for first time buyers in a market where house prices exceed appraisal values. Most of these loans allow for 6%over the appraised price, whereas most conventional financing options allow for only 3%. So when you do refinance later its like locking in on the price of the house now, not paying the principal, but building equity and allowing for the market to advance well beyond your purchase price. And even though the rates do change, they are capped and dont change the monthly payment. Usually they just add an additional payment on the end of the loan, so the term changes, not the monthly payment.

Again this is how most reputable lenders operate. There are lenders that will try to sucker people. You have to watch out for that.

It is also possible to get an arm like that for 3yrs with only a 1 yr early payback penalty. Theyre available, but hard to find because mortgage officers get offered incentives (thousands of $) to lock people in for the full term, wether they work for one lender or a broker.