September 6, 2018
In our last blog post we discussed some reasons to purchase a home with an FHA mortgage instead of renting a property. Most of the reasons discussed in the previous post had to do with financial matters including the fact that renters gain no equity in their rental homes, and they have no ability to apply for a cash-out refinance loan based on the current value of the home. Reverse mortgages are unavailable to renters, too.
But there are other reasons to buy a home and not rent. Are you thinking of an FHA mortgage to buy a home based on some of the reasons listed below? There are compelling arguments for each of the five reasons.
#5: Buying A Home Means More Privacy
Borrowers who own their own homes are free to modify their property to suit their privacy needs including installing privacy fences, adding features to the interior without asking a landlord for approval, etc.
You have no landlord to answer to with an FHA home loan, though borrowers should be careful to review homeowner association agreements carefully (especially where condos are concerned) to make sure there are no restrictive covenants not to the buyer’s liking.
#4: Buying Instead Of Renting Means Freedom To Customize
Renters don’t have the option of turning a basement into a pool table room, hobbyist den, or spare bedroom. Home owners, on the other hand, are free to apply for FHA rehab loans to renovate a property, adding to its’ value or aesthetic appeal.
You can convert a garage into a living space or add a “mother-in-law apartment” to the home without asking a landlord to do so.
#3: Buying A Home Can Help Improve Credit
It’s true that applying for an FHA home loan requires you to financially qualify, but for those who were concerned about their credit before they purchased a home, the mortgage is an excellent way to improve credit scores.
This is done simply by staying on top of your mortgage loan payments and making them on time, every time.
#2: Owning A Home Means Potential Future Income Or Cash Out
Borrowers who purchase multi-unit homes are free to rent out the unused units as long as they remain owner/occupiers. However, there is one important caveat to this; FHA loan rules specifically address using a home secured by an FHA mortgage for “intermittent occupancy” rentals.
An Air B-n-B operation is not specifically named in FHA mortgage loan regulations, but the practice of Air B-n-Bs seem to be against FHA mortgage loan rules found in HUD 40001.
The spirit of the FHA loan rules in this area are basically that multi-unit homes should not be rented for periods of less than 30 days; this rule may not be listed for all FHA home loans, but it’s important to recognize that hotel-type operations are frowned upon in some sections of HUD 4000.1.
Potential future income may also include the ability to apply for a reverse mortgage and take equity out of the home in cash, or do something similar with an FHA cash-out refinance loan.
The cash back from a cash-out refi is a one-time payment based on the money left over on the transaction after the original loan is paid off and any associated expenses of the loan.
Reverse mortgages may feature a lump sum payout or other arrangements depending on the nature of the loan, the interest rate (fixed or adjustable rate), and the terms of the reverse mortgage.
#1. Owning Instead Of Renting Has Tax Implications
Renters don’t get any available tax write offs available including any tax breaks on home loan interest, any tax breaks on discount points purchased, or state property taxes.
The available tax breaks for home ownership may vary in any given tax year and tax codes change frequently; it is best to consult a tax professional to learn what federal income tax advantages may be available in the reporting year you purchase or potentially purchase the home in.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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