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Should I Rent Or Should I Buy A Home

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There is no straightforward answer to whether you should rent or buy a home. We are all sold on the dream of working hard and owning a home. While this dream is admirable it’s not for everyone and is sometimes a bad bargain.

The mortgage crisis that triggered the 2008 financial crash is proof of this. Buying a home without the right conditions in place can prove to be a burden leading to huge losses.

It’s a huge financial decision that depends on various factors such as:

So is renting a home the answer?

The Pros of Renting a Home

  • Little to No Responsibility

    If the home you’re renting suddenly springs a leak in the roof, the most you’ll be worried about is the damage to your belongings. The headache of getting contractors and funds to fix the roof is not yours. It falls on the homeowner.

    That’s the primary benefit of renting. You can up and leave whenever you choose, signing a lease that suits your lifestyle. You don’t have to worry about the cost of maintaining a house and the taxes and fees involved.

  • Predictability and Affordability

    When you’re renting, you know for sure how much you’ll spend on rent and utilities. You can then budget accordingly. Even rent increments are usually communicated ahead of time.

    Homeowners, however, may enjoy a seemingly peaceful financial period only to be flooded with repair costs that can run thousands of dollars. Mortgage interests and insurance premiums can also be quite high for homeowners.

The Cons of Renting a Home

  • You’re Powerless

    Unless you live in a rent-controlled apartment, rent hikes can be steep when your lease is up for renewal. You’re at the mercy of your landlord. The same goes for whether repairs are done on time or not.

  • You Can’t Build Equity

    Equity is the value you get from your house once all debts are paid. Building this value is not an option available to renters. The monthly rent you pay doesn’t contribute to you owning an asset.

The Pros of Buying a Home

  • Intangible Rewards

    Homeownership gives one a sense of accomplishment. It is a tenet of the American dream.

    It also imparts a sense of safety. Basically, you own the roof over your head, or will once you finish your mortgage payments.

    Whether it is tiny and mobile or sprawling, knowing that you can close the door and be in your own space is very reassuring to most.

  • A Long-Term Investment

    Once you check off all the criteria of a successful homeowner, having a home can be a huge financial asset.

    This asset can be a source of rental income in later years, or home security during your retirement years. Or you could sell it for an appreciated value and make a lump sum to be reinvested.

    Of course, this investment aspect is dependent on how the market behaves and whether your property appreciates or depreciates.

The Cons of Buying a Home

  • Unexpected Hidden Costs

    Buying a home costs much more than the down payment and your monthly mortgage payments. Without consulting a robust guide to buying a home, here are some of the costs you might miss:

    • Mortgage Interest Payments
    • Property Taxes
    • Insurance premiums for Homeowners, floods, and mortgage
    • Utilities (e.g. electricity, gas, water, etc.)
    • Maintenance & Repairs
    • Homeowners Association Fees
    • Investment Opportunity Cost (the cost of investments you will forego because your money is tied up in your home)

    Remember that for the first few years of your mortgage, your monthly payments go towards mortgage interest. You only start reducing the principal well into the fourth or fifth year of the mortgage, depending on your interest rate. Your interest rate depends on your credit, and some credit problems can ruin your mortgage application.

    Premiums and maintenance costs can fluctuate widely making it difficult for you to cover all contingencies from the get-go.

  • It’s Time-Consuming

    Repairs, tenant wars, HOA requirements, contractors, maintenance, building regulations… the list of things to attend to as a homeowner is almost endless.

When Should You Buy a Home?

  • You Have the Financial Means To Buy a Home

    You should have enough money for your downpayment and monthly mortgage payments.

    Your budget should also be able to accommodate extra costs such as maintenance, repairs, taxes, utilities, HOA fees, and insurance.

  • You Plan To Live In Your House Long Term

    Buying a home only makes sense if you’re planning to live in it for at least 5 years. In this way, you will have started making a huge dent in the principal of your mortgage and will have started building equity.

    Don’t forget the huge outlay of time and resources required to get a home up and running. You should only put these in when you’ll reap the results years later.

    Granted, refinancing is always an option and can help you afford a new home. Check out our guide to mortgage refinancing!

  • You Find the Right House to Buy

    Don’t just buy a home because that’s the best one you could find at your price point. In that case, it would be better to rent.

    Look for the house that speaks both to your heart and the health of your future investments.

  • You Want To Be a Homeowner

    We can’t reiterate this enough, homeownership is not for the faint of heart. It requires time, resources and is often a labor of love.

    Be sure going in that owning a home is what you want. Otherwise, 2 years in it will feel like an albatross around your neck.

Is Renting or Buying a Home Better?

This is but a snapshot of the considerations you need to make before you decide whether you want to sign a lease or a mortgage contract.

If you can find a rental that is cheaper than monthly mortgage payments for a comparable home and you’re not staying for good, you’d rather rent. If you want to put your roots down for the long haul, buying is better.

Neither, of them, is better, it really just depends on your current goals and financial capabilities.

Summary

Should I Rent Or Should I Buy A Home?

Article Name

Should I Rent Or Should I Buy A Home?

Description

Should i rent or should i buy a home? There is no straightforward answer to whether you should rent or buy a home.

Author

Jason M. Kaplan, Esq.

Publisher Name

The Credit Pros

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Credit Repair

Why did House Prices Go Up in 2020 During the Pandemic

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The pandemic brought with it a lot of surprises, one of them being the rise in house prices. The US economy plummeted with millions of Americans finding themselves out of work and without food. No one would have predicted that at the time when times were hard for everyone, home prices would become overheated, mortgage rates would skyrocket, and the supply for houses would not meet the demands and consumer confidence in the housing market was reducing. The housing market was booming.

Right at the beginning of the pandemic, no one was willing to buy a house or even sell one. This was because of the uncertainties of the time brought about by Covid-19. In a span of a few months, most day-to-day activities were confined to the available properties. Houses became a key asset and prices began to rise.

The US real estate market in context

The American real estate market suffered a huge blow as a result of the 2008 financial crisis. The recession saw the prices of houses fall by a big margin and the world’s largest real estate market was affected in ways no one would have imagined. This was as a result of subprime mortgages that were given in large numbers to help as many Americans as possible to become homeowners. Homeowners found themselves mortgages that were higher than the value of their houses. By 2013, the market was showing signs of recovery. From 2018 to 2019, the market began to fall slightly.

For many Americans, owning a home is very important to them as it allows them to build up their wealth, make it easy for them to access credit, and be able to save more as they no longer have to pay rent. A large percentage of homeowners rely on mortgages to acquire homes after raising the down payment from their savings or with money from their families. It was expected that the pandemic would lead to foreclosures especially since the economy took a downward spiral at the start of the pandemic. Many people also lost their source of income and were unable to keep up with their mortgage payments.

The most expensive real estate in the USA is found in San Francisco, California. San Francisco has a booming economy fueled by the presence of tech companies like Apple, Facebook, Intel, and Tesla that have their headquarters in the nearby Silicon Valley. The city also has been at the forefront in matters progressive culture which attracts more people to relocate to it. As a result of the thriving tech economy that brings billions of dollars into the city, and rising housing demand, the city is the most expensive place to buy a house in the US. On average, the price per square foot is $1,100.

Why do house prices go up in general?

The value of a house is usually expected to depend on the demand for living in a particular area, but things like recessions and pandemics are known to have an impact that can either be positive or negative. House prices go up when the supply does not meet the demand. One of the key factors that affect the supply has to do with the regulations that restrict the number of housing units that can be built. For example in a single-family zone, it’s illegal to build townhouses or apartments, or condos on any spaces designated for single units and parking minimums must be met. This forces contractors to make provisions for parking spaces even in places where it’s unwarranted.

Some local governments allow groups of people to block developments they feel will have a negative impact on the overall value of the entire estate. These local zoning regulations are making it impossible for most Americans to move to better estates due to the shortage of housing.

Why did house prices go up during the pandemic?

The price for houses is determined by the existing demand and supply dynamics. The fewer the number of houses available, the higher the prices for the available units would be. If the number of buyers is fewer, then the house prices would be lower. The prices went up because the pandemic affected both supply and demand. A lot of people were in a rush to take advantage of the falling mortgage rates which made it easier to acquire homes at a cheaper price.

As a result of the falling mortgage rates, houses were not staying on the market for long. Among those who bought the homes were first-time homebuyers or those who were buying a second home. These put a lot of pressure on the market as were not putting another home on the market as they took one out of it. In some instances, others chose to refinance their mortgages based on the lower rates instead of acquiring a new home.

Because of the pandemic, people who had plans of listing their homes did not do so and those who had listed their homes took them off the market. As a result of the social distancing rules at the height of the pandemic, not many people were willing to show their houses.

Home developers did not anticipate a surge in the demand for housing during the pandemic. A number of them had let go of their employees and had shut down. At the same time, prices for materials like lumber also added to the construction costs alongside the scarcity of skilled workers.

Summary

Why did House Prices Go Up in 2020 During the Pandemic

Article Name

Why did House Prices Go Up in 2020 During the Pandemic

Description

The pandemic brought with it a lot of surprises, one of them being the rise in house prices. Read why did house prices go up in 2020 during the pandemic.

Author

Jason M. Kaplan, Esq.

Publisher Name

The Credit Pros

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Examining How Negative Items Impact Your Credit

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what items negatively impact your credit score

There are undoubtedly numerous factors that can have a negative impact on one’s credit score. If you’re concerned about what affects your credit or are attempting to maintain a healthy score, it’s beneficial to understand which items on your credit report have the greatest effect on your credit.

Below, we’ve highlighted four potential causes of the largest drop in one’s score. Additionally, we have included the average point one can lose for each item.

What Is the Impact of Bankruptcy on your FICO Score?

The higher your initial credit score, the more points you will lose for declaring bankruptcy. If you have a credit score of 680, filing for bankruptcy will result in a 130-150 point drop in your score. Bankruptcy will cost a person with a 780 credit score 220-240 points.

How Much Does Bankruptcy Impact Your Credit Score?

According to FICO, a foreclosure will reduce your credit score by an average of 85 to 105 points if your credit score is 680. If you have an excellent credit score of 780, a foreclosure will reduce it by 140 to 160 points. This means the higher your credit score, the more adversely affected it will be.

What Is the Impact of a Late Payment on Your Credit Score?

A single late payment may have a greater impact on higher credit scores. According to FICO data, a 30-day delinquency can result in a 90- to 110-point decline in a consumer’s FICO score of 780 who has never missed a payment on any credit account.

How Much Does Vehicle Repossession Impact Your Credit Score?

Repossession of your vehicle can have a catastrophic impact on your credit score. In some cases, you can see a whopping 100-point drop in your credit score. And, according to myFICO.com, late payments, collections, and public records all remain on your credit report for approximately seven years.

While the above issues are unavoidable for the majority of people, in certain circumstances, depending on your financial situation, you may have a choice. If you are drowning in debt and contemplating bankruptcy, for example, you may want to consider several factors first. If your credit score is already low as a result of late payments, a high debt-to-income ratio, and delinquent accounts, you may be able to improve it faster by filing for bankruptcy, as it will have a smaller impact on your score but will provide you with the fresh start necessary to begin rebuilding your credit.

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What is the Highest Credit Score You Can Actually Attain?

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What is the highest credit score

On commonly used credit score models, the highest credit score you can have is an 850. Few people achieve this financial feat because it takes time and consistent credit-building habits. Scores fluctuate as new information is added to your credit reports, so achieving a perfect credit score is likely to be a fleeting achievement if you do achieve it.

Credit scoring models come in a variety of flavors. FICO 8 and VantageScore 3.0 are the most commonly used credit score models, with scores ranging from 300 to 850.

What Are the Odds of Having a Perfect Credit Score?

It is more difficult than you think to achieve a perfect credit score of 850. In the United States, only 1.2 percent of FICO scores are currently at 850. That’s not a lot of people. How does that compare to the majority of Americans? Experian reports that the average FICO credit score in 2020 was 711, which is considered a good credit score.

Why a Perfect Credit Score Isn’t Necessary

Perhaps the pursuit of a perfect credit score is noble, but achieving an 850 score does little to help you when compared to other exceptional credit scores.

One of the primary reasons to improve your credit score is to save money on interest rates. However, most lenders do not offer lower interest rates for having the highest credit score on a scoring model. When determining your creditworthiness, a lender sees little difference between an 800 and an 850.

If you aim for a credit score in the 800 to 850 range, which FICO considers “exceptional,” you’ll have access to the market’s most competitive rates.

How Is Your Credit Score Determined?

FICO and VantageScores both use the same five factors to calculate your credit score, but they do so in different ways. Your credit score is comprised of five factors:

  • History of payments
  • Credit utilization
  • Credit history length
  • Credit allocation (types of accounts)
  • Accounts with new credit

Each factor has an impact on your credit score, though some have a greater impact than others. Regardless, they must all be considered and tracked.

What You Can Do to Raise Your Credit Score

There are steps you can take right now to improve your credit score. Following these steps will not only help you improve your credit score, but you will also have a better understanding of your credit and personal finances in general.

Make On-Time Payments on Your Bills

Do yourself a favor and pay your bills on time every month. Late payments can be reported to the credit bureaus for up to seven years. Setting up automatic monthly payments, either through the vendor or your bank, is an easy way to remember to pay your bills on time.

Debt Reduction

Credit Utilization accounts for 30% of your FICO credit score. Reducing your debt can help you improve your credit score over time. Make more than the minimum payment required, or make multiple payments each month, to gradually reduce your total debt.

Boost Your Credit Limits

You can also reduce your credit utilization by requesting a credit limit increase from your credit card company. Keep in mind that this may necessitate a hard credit inquiry, which may temporarily lower your credit score.

You can always ask the creditor if you can increase your limit without going through that step. Some credit card companies may be willing to work with you, particularly if your income has increased since you opened the account.

Use Credit Wisely

Maintain low credit card and other revolving credit account balances. Also, only open new credit accounts when absolutely necessary. Although your credit mix influences your credit score, adding a new credit account type is unlikely to improve your score.

Maintain Your Credit Cards

The age of your credit is important. If you don’t want to use your credit cards, don’t cancel your account, especially if you’ve had it open for several years. This could significantly reduce your credit age. Instead, keep the unused credit cards in a secure location until you need them.

Examine Your Credit Reports

Checking your credit report may not appear to be a proactive way to improve your credit score. However, according to a 2020 Consumer Financial Protection Bureau (CFPB) report, 59 percent of consumer complaints were about credit or consumer reporting. Of the 319,300 consumer complaints, 68 percent were about incorrect information on credit reports.

Mistakes on your credit report may be lowering your credit score. Errors can be as minor as incorrect personal information or as serious as duplicate, outdated, or missing credit accounts.

AnnualCreditReport.com allows you to obtain a copy of your credit report from the three major credit bureaus once every 12 months. You can now access your reports weekly until April 20, 2022.

If you discover errors on your credit reports, contact the credit reporting agency right away to file a dispute. Credit reporting agencies are required to investigate and respond within 30 days, on average.

Make use of a Credit Monitoring Service.

Another way to keep track of your credit score is to use a credit monitoring service. The best credit monitoring services provide you with access to your credit score as well as other useful features such as identity theft protection and access to credit reports.

Some credit monitoring services are free to use, while others require a monthly or annual subscription fee. Most services provide a mobile app that allows you to access your score from anywhere in the world at any time.

Experian Can Help You Improve Your Credit

Experian is not only one of the three major credit bureaus, but it also provides a free service called Experian Boost that can help you improve your credit score. Experian Boost builds your credit history by utilizing other recurring bills such as utilities, phone and internet services, and Netflix. There is no guarantee that your credit score will improve, but the average FICO score increase for those who did see a credit score improvement was 12 points. The process takes less than 10 minutes, which is a reasonable time investment for a significant credit score boost.

Credit scores are important in financial health, and a higher score opens up more options, particularly when making large financial commitments such as purchasing a home or taking out a loan. Aiming for a perfect credit score is a lofty but attainable goal. Instead, work to improve your score over time so that you can capitalize on it.

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