Should I buy or keep renting?
In most cases
it's better to buy instead of rent, and to buy as soon as you can afford to do
so. The
only exceptions are for people who have very low rent, or who plan on moving in a
few years. So the first thing you need to do is to figure out whether buying is
even a good idea for your situation.
My rent vs. buy calculator will help you do
that very thing. Unlike many calculators of this type, I've already filled in
all the blanks with sample values, all of it realistic. You need change only a
few items (current rent, home price, and mortgage rate) to get a good idea of
whether renting is better than buying.
Most people think the benefit in buying is to
"stop throwing your money away on rent," but in fact the equity you
build from buying is mostly offset by the money you will "throw way"
on taxes, insurance, maintenance, and mortgage interest, which renters don't
pay. The real benefit from buying is that you freeze
your monthly payment for 15 to 30 years, and then you stop paying it
altogether.
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The Basics
You don't pay
cash when you buy a house. If you had to do
that then nobody could afford a home. Instead you make a small down payment in cash
(3.5 to 20% of the sale price), and you get a loan from a bank called mortgage for the rest. You make payments
on this loan every month for 15 or 30 years, and then you get to stop making
payments. (If you're rich and don't need a loan, congratulations. You can
skip every part of this guide relating to loans.)
You used to be able to get zero-down payment loans, but after the lending crisis (caused by banks giving out easy loans like candy), those are pretty rare. In 2006, a whopping 43% of first-time homebuyers put no money down (USA Today, 2006), but those days are gone. Veterans with good credit scores can still get no-down-payment loans, but that's about it.
You used to be able to get zero-down payment loans, but after the lending crisis (caused by banks giving out easy loans like candy), those are pretty rare. In 2006, a whopping 43% of first-time homebuyers put no money down (USA Today, 2006), but those days are gone. Veterans with good credit scores can still get no-down-payment loans, but that's about it.
The
higher the down payment you can make, the easier it is to get a loan, and the
lower the interest rate is, and the lower the monthly payment is.
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