September 5, 2018
Does it make more sense to rent a home or to purchase one and make a mortgage payment rather than a rent payment? A lot depends on the property values in your chosen housing market, the cost of renting in that area versus the cost of purchasing, and the borrower’s financial goals.
Are you thinking of making the switch from being a renter to becoming a home owner? Some reports claim that rents have increased as much as 88% in certain markets over time, and some renters choose to put that money into a property they own rather than dealing with the issues of being a long-term renter.
Is Buying A Home With An FHA Mortgage Instead Of Renting A Good Idea?
The first thing needed to answer this question is an examination of the borrower’s rental expenses versus the cost of owning a home. Then there are the long-term financial implications of owning your home versus renting.
Borrowers who stay in their homes long-term will find their home to be a potential investment that could pay off years down the road in the form of increased equity the longer mortgage payments are made, the ability to apply for an FHA cash-out refinance loan to get cash out of the home rather than sell it, etc.
No such financial incentives exist for renters. If your long term financial goals include the ability to sell, refinance, or even rent out unused living units in a multi-unit property (FHA home loans allow homes with as many as four living units), buying a home with an FHA mortgage may make a good deal more sense than renting.
Buying a home may offer tax advantages not open to those who rent; it’s a very good idea to look up the most current tax code for both state and federal income tax to see what incentives may exist for those buying a home. You can also retain the services of a tax professional with experience in real estate tax issues.
FHA Home Loans Feature Lower Down Payment Requirements
FHA mortgage loans have a minimum down payment requirement of 3.5% of the adjusted value of the home. Compare that with conventional or other non-FHA mortgage loans to see if this option is right for you.
Some borrowers with FICO scores outside the FHA minimum requirements (or the lender’s standards, which may be higher than FHA loan minimums) may be required to make a higher down payment. Ask your loan officer for that financial institution’s FICO score requirements for the lowest possible down payment.
Owning Rather Than Renting Can Also Pay Off After The Mortgage Is Paid In Full
Another option renters do not have is to apply for an FHA Reverse Mortgage, also known as an FHA Home Equity Conversion Mortgage (HECM). This type of home loan, for borrowers aged 62 or older who own their homes outright or are close to having the mortgage fully paid off, allows the homeowner to take equity out of the home in cash.
No repayment is due until the owner dies, sells the home, or stops using it as the primary residence. FHA Reverse Mortgages are an option that renters do not have access to, and while some may decide not to exercise this option when they become eligible to do so, the financial benefits await any qualified loan applicant who changes her mind and wants to apply.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
Browse by Date: