FHA Loans: It May Be Better to Buy Instead of Rent
January 31, 2020
The age-old question asking whether it’s better to rent or buy isn’t any easier to answer in 2020. Or is it? Renting is a growing issue in many cities where rents keep climbing. How long can you rent before it’s no longer financially smart to put off looking for a more permanent home?
One argument in favor of buying or building (on your own lot) a home with an FHA mortgage is related to this--the ability to modify your property without having to ask the landlord for permission. Those who own their homes can add a living unit, a garage, or other features AND have the ability to apply for an FHA refinance loan to get the work done, too.
But some renters don't realize that if you actually own your home you can refinance to pay for renovations--even if that work is done with the intent of increasing the value of the home so you can put it up for sale.
Renting Out Bedrooms in Your Apartment
You may or may not be permitted to sublet or rent out a spare bedroom in a property you rent--much will depend on whether the rental agreement permits this or not. But with an FHA mortgage you have no such worries. FHA loans permit owner/occupiers to rent out rooms in the home in traditional monthly rental agreements. Short-term rentals under one month in duration are not allowed.
FHA Loans Allow Multi-Unit Home Purchases
Those in favor of buying a home with an FHA mortgage instead of renting sometimes mention their ability to purchase a multi-unit home you can grow into as one of the incentives for using the FHA loan program. Did we mention that the down payment requirements are the same for multi-unit properties as they are for single-unit homes?
The lowest FHA loan down payment is 3.5%, and that applies to multi-unit homes, too.
FHA Loans And Typical Home Owning Expenses
Some renters complain about having to pay property taxes on a home they own.But what about situations where landlords may build in the expense of property taxes into their rent? You may be paying property taxes whether you intend to or not. Why not pay them directly instead?
Mortgage Insurance
Some renters complain that buying a home with an FHA mortgage would require them to pay for the FHA Mortgage Insurance Premium. Renters insurance is a cost to anticipate in addition to your security deposit, pet deposit, etc. and is a typical expense of doing business as a renter. Add the amount of your security deposit, pet deposit, and any other one-time charge including annual rent increases. There is no dollar-for-dollar savings available for switching to home ownership, but there is definitely more flexibility in what you can do with the property once you become the owner.
Buying a home instead of renting it means doing some financial housekeeping to get started. Don’t forget to review FICO scores and credit reports and payment history to make sure you have made on-time payments for the 12 months leading up to the loan application.
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RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
One argument in favor of buying or building (on your own lot) a home with an FHA mortgage is related to this--the ability to modify your property without having to ask the landlord for permission. Those who own their homes can add a living unit, a garage, or other features AND have the ability to apply for an FHA refinance loan to get the work done, too.
But some renters don't realize that if you actually own your home you can refinance to pay for renovations--even if that work is done with the intent of increasing the value of the home so you can put it up for sale.
Renting Out Bedrooms in Your Apartment
You may or may not be permitted to sublet or rent out a spare bedroom in a property you rent--much will depend on whether the rental agreement permits this or not. But with an FHA mortgage you have no such worries. FHA loans permit owner/occupiers to rent out rooms in the home in traditional monthly rental agreements. Short-term rentals under one month in duration are not allowed.
FHA Loans Allow Multi-Unit Home Purchases
Those in favor of buying a home with an FHA mortgage instead of renting sometimes mention their ability to purchase a multi-unit home you can grow into as one of the incentives for using the FHA loan program. Did we mention that the down payment requirements are the same for multi-unit properties as they are for single-unit homes?
The lowest FHA loan down payment is 3.5%, and that applies to multi-unit homes, too.
FHA Loans And Typical Home Owning Expenses
Some renters complain about having to pay property taxes on a home they own.But what about situations where landlords may build in the expense of property taxes into their rent? You may be paying property taxes whether you intend to or not. Why not pay them directly instead?
Mortgage Insurance
Some renters complain that buying a home with an FHA mortgage would require them to pay for the FHA Mortgage Insurance Premium. Renters insurance is a cost to anticipate in addition to your security deposit, pet deposit, etc. and is a typical expense of doing business as a renter. Add the amount of your security deposit, pet deposit, and any other one-time charge including annual rent increases. There is no dollar-for-dollar savings available for switching to home ownership, but there is definitely more flexibility in what you can do with the property once you become the owner.
Buying a home instead of renting it means doing some financial housekeeping to get started. Don’t forget to review FICO scores and credit reports and payment history to make sure you have made on-time payments for the 12 months leading up to the loan application.
------------------------------
RELATED VIDEOS:
Don't Skip the Home Inspection
Bigger is Better With a Jumbo Loan
Insuring Mortgages With the FHA Funding Fee
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