Things to Consider
Rent vs Own: Which is Best for You?
To rent or to own? This age-old question has no one-size-fits-all answer and knowing the best option for you can be complicated and overwhelming. While there are pros and cons to both renting and becoming a homeowner yourself, it is helpful to examine your personal, financial and lifestyle goals before making a decision.
Circumstances play a role in choosing whether to be a tenant or to buy a home. Continue reading to learn the basics of renting and owning to help you determine which one is right for you.
When you should rent
Homeownership is not for everyone. Renting might make more sense for those who prefer to leave home maintenance to a landlord or property management companies. Of course, finances play a large role in choosing to become a tenant as well. Perhaps you would like to buy a house, but the cost of real estate in your area makes that harder to achieve. This often occurs when moving from a rural area to a new city. In this case, it could be smarter to rent and save for a time when the market is more conducive to buying.
It’s important to look at your potential monthly housing costs as a renter. The cost of renting may include more than just the actual monthly rent price, like utilities and any fees. Before moving into a rented space, it can help to create a projected monthly budget to see if it’s sustainable on your income. Here are few of the most common rental fees that should be budgeted into the potential cost of living in a rented space.
- Application Fee and Security Deposit: Be sure to remember to budget in application fees, which can be a hidden cost that is easily overlooked. A security deposit is sometimes required in order for the landlord to have some money to deal with any damage.
- Parking: Some apartments, townhomes and housing complexes charge a monthly or yearly parking fee, which varies depending on location.
- Renter’s insurance: This is generally a low-cost requirement that benefits both the renter and the landlord in case of disaster during the lease term. Sometimes, renter’s insurance is not required, but it is still smart to get regardless.
- Utilities: There is a large variety of costs associated with utilities, depending on location and ownership. Some utilities are included in rent, while others are paid separately by the renter. These can include electricity, gas, trash, internet, cable and water.
- Laundry: Some rented spaces come with an in-house washer and dryer, but if the place you are looking to move into doesn’t, it is important to add in the cost of doing laundry.
- Pet fee: If you have a furry friend, the cost of renting might go up. Some landlords or property owners require a one-time fee, while others ask for a monthly fee to be paid along with rent.
These costs don't usually change, and you can depend on your cost of living to stay predictable, which is often not the case for homeowners. Renting also offers benefits for those who move around often or otherwise don’t have a lifestyle that could support the time commitment of homeownership.
When to own: Can I afford a mortgage?
If you are seriously considering buying your next home, it can be useful to understand all the responsibilities and requirements of a homeowner. While owning a home can be a great asset to your financial portfolio, buying real estate is not right for everyone. Again, this is situational, and your personal goals, home location and finances should be taken into account. Be sure to take a look at your credit score and see what kind of loan you are qualified for.
The upfront cost of buying a house includes more than just the price tag on the house. Some of the other hidden fees that often come along with buying a house include service charges, pest inspections, survey fees, taxes, and escrow payments.
Alongside the home price, which can vary depending on location and age of the house, there are a number of other expenses that you should make room for while creating a monthly budget. Educate yourself about how to plan for the costs of owning your own home. Here is a short list of example items that should be included in the cost of homeownership:
- Closing costs
- Property taxes
- Professional repairs
- Monthly mortgage payment
On top of monthly housing costs, take a look at whether you can afford to pay a monthly mortgage. Luckily, there are many different kinds of mortgages available for different circumstances. RMS knows that this can be confusing, but we can help you choose the mortgage that’s right for you. Be sure to keep your eye on changing mortgage interest rates, and leave room for expansion.
If you want to create a space for you and your family to live in for many years, homeownership gives you this control. Even though some neighborhoods have homeowners’ associations that have aesthetic restrictions, you can decorate and curate your home to satisfy your personal desires.
Mortgage payment vs rent payments
If you are currently a renter, you may have noticed that some monthly mortgage payments are about the same as your monthly payment for a rental property. Before you go out and purchase a house - there are other important factors you need to consider, to ensure your homebuying journey goes as smoothly as possible. For instance, when considering your budget, what kind of mortgage rate you qualify for? Or how does your FICO® score affect your home financing opportunity?
As a homeowner, mortgage payments make up the bulk of your monthly costs. Most of the time, you’re paying on mortgage interest, and it could be a while before most of the payment is principal. Your credit score can affect how good of an interest rate you can get. However, people who own their own homes can receive a tax deduction, and there is always the possibility that your home value will increase over time, making real estate a valuable asset. Home mortgage interest is usually tax deductible but may have limitations. The consumer should consult a tax professional for further information.
Even typical mortgage payments can be hard to understand and, while just grasping the basics of your payments is a good start, RMS has resources for those interested in understanding the intricacies of mortgages.
On the other hand, rental payments are a little more consistent. During your contract, you know exactly what you owe each month and you can rest easy knowing that any damages or mishaps will be taken care of by your landlord. Plus, renters are allowed the flexibility to move at the end of their lease. Financially, renting could make more sense for you, depending on your lifestyle and your area’s housing market.
Even after sitting down and combing through the pros and cons of renting or owning a living space, you might still be torn. If you find yourself at an impasse, plugging some numbers into RMS’ Rent vs. Buy calculator can help you make a final decision. The calculator compares your current rent (and annual rent increase) with information of the potential property. Some of this requires estimation, but it can help you move into the next chapter of your life with certainty. Loan officers are a valuable resource that can help you talk through your options.
Whether a longtime homeowner looking to move to a new area or a young person interested in your options, it's valuable to keep your finger on the pulse of the housing market. Even if you are settled, it could be worth reevaluating your situation every now and then. Be sure to reach out to Residential Mortgage Services with questions on what is best for you now!
Things to Consider
Should You Consider Refinancing Your Mortgage?
If you've been a homeowner for a little while now, you may be asking yourself the all-important question, "Should I refinance my mortgage?"
Generally speaking, experts say refinancing is worthwhile when you can lower your rate by half a percentage point or more. The exact amount, of course, depends upon the terms of the loan. That kind of money really adds up over time so you can keep more of what you earn.
Whether you are looking for a shorter loan term, a lower monthly payment, or have general questions about if refinancing is right for you, there is a lot to think through. Before you move forward with refinancing, factor in the following considerations.
Non-Rate Reasons to Refinance
A lower interest rate isn't the only reason why it may make sense to refinance. Here are a few non-rate reasons to refinance. (link to non-rate reasons blog)
Shorter loan term – If you are looking to pay less interest and a larger monthly payment, you may find it beneficial to refinance to a shorter-term mortgage. It will be a larger monthly cost, but you’ll pay it off faster and with less interest.
Switch from ARM to FRM – With an adjustable rate, your rate may increase beyond what you’d pay with a fixed rate. If interest rates start rising, it might be too late.
Your home is worth more - Homeownership is a smart investment, especially these days, as more homes are appreciating in value. As noted by Credit Karma, refinancing your mortgage with more equity available can provide added funds to pay off other expenses.
What if you have a Jumbo Loan?
Jumbo loans are non-conforming mortgages that exceed the limits set by Freddie Mac and Fannie Mae (i.e. $484,350). Although jumbo loans tend to have stricter approval requirements than conventional loans or USDA-RA loans - such as a higher down payment - they can be worthwhile because jumbo loans offer flexibility, with monthly adjustable-rate mortgage payments or fixed-rate mortgage payments. All that being said, since the underwriting standards for jumbo loans are more stringent than conventional loans, you may wonder whether the same standard applies to refinance a jumbo.
Reasons Not to Refinance
There are a few situations where you might want to reconsider refinancing.
Moving? If you are considering moving soon, you will want to figure out your break-even point to ensure you won’t lose money in the refinancing. (We talk more about this later on.)
Prepayment penalty. You’ll want to check if your mortgage has a penalty for prepayment. Confer with an RMS loan officer to look at the details and if it is worth it to refinance.
Existing home equity loan. If you have a home equity line of credit, you may need permission from your current lender to refinance.
More Tips About Refinancing
Calculate your break-even point. As with any investment, figure out how long it would take for your refinance to pay for itself. Take your total costs and divide by your monthly savings. That calculation will tell you how long it will take to reap the rewards.
Consider all the fees. Be aware of all the costs associated and if you can afford them. Some of the fees that you may have to pay are, but not limited to, appraisal fee, origination fee, and a mortgage application.
Consider the term of your loan. Once you figure out your breaking point, compare your total costs, including interest, of your current mortgage and what your new loan would be. In the early years you are paying more interest than principle. Once you refinance, you are starting over. If you are in the later years of your mortgage, it might not be worth it. Contact an RMS loan officer to help you with the best home financing options.
Is it worth the effort? Refinancing is just as much work as an initial mortgage. You will need to collect paperwork, evaluate your savings and options to decide if refinancing is for you.
Check your credit. Your credit may affect your interest rate, so be sure to know what makes up your score.
Some of the things your lender will look at are your income, your loan-to-value ratio, credit history and FICO® score. Much of the material you'll need is similar to what's required in order to pre-qualify. Give RMS a call for more news and information on refinancing and whether you're in a situation that makes you an ideal candidate.
*This article was originally posted 02/1/2019. The rates and figures have been updated to reflect data as of June 2021.
Things to Consider
Non-rate reasons for refinancing your mortgage
When it comes to the very latest in residential real estate events, stories that tend to make the news are usually related to asking prices, and the availability of homes for first-time or move-up buyers. But another newsmaker is homeowners taking advantage of low interest rates to roll over old mortgages into new ones resulting in refinance lending more than doubling over the past year.
The general rule of thumb is if you can lower your interest rate by 0.5% or more, refinancing is worth considering, as it could potentially save you thousands of dollars over the life of the loan. However, a low-interest rate environment is not the sole reason why refinancing can be a smart move. Here are a few other reasons why it can be worth the time and effort:
Reduce the loan's term
Generally speaking, there are three options you can choose from when it comes to how long you intend to pay off your home loan: 10-, 15- and 30-year terms. Overwhelmingly, the most common choice is 30 years. However, in today’s low interest rate environment, and with job availability on the rise, you may be in a better position to cover the higher monthly payments associated with converting from a 30-year to a 15-year term mortgage. The upshot here is, you'll be able to pay off the entirety of the loan more quickly and ultimately pay less than you would with a 30-year mortgage. You can consult one of our experienced RMS loan officers, or use an available mortgage calculator to gain a better understanding of whether a 30- or 15-year term mortgage makes more sense for you.
Switch from FRM to ARM
Just as you typically have two choices of terms, you also have dual options for the type of interest rate: Fixed Rate Mortgage (FRM) or Adjustable Rate Mortgage (ARM). Fixed rate mortgages are the most common choice since they provide a consistent and predictable payment amount.
However, depending on how long you’ve owned your residence or if circumstances have changed, an ARM may be a better choice for you. For example, if you're thinking about moving in a few years - which you may not have considered when you first applied for a mortgage - an ARM may be a wiser option, in part because rates at the outset may be lower than they are with fixed rate mortgage products.
Alternatively, if you currently have an ARM and you don’t plan on relocating in the near term, then with rates where they are now switching to a fixed rate mortgage would allow you to lock in a rate for the life of your loan, protecting you against rising interest rates.
Tap into home equity
It's said that real estate is one of the best investments you can make. This is largely due to the nine-year U.S. housing-market boom. Equity has continued to improve because price increases have widened the gap between what homeowners owe on mortgages and the value of their properties, according to the most recent figures available from the National Association of Realtors. Similarly, home equity levels have also surged. In the first quarter of 2021, over 17 million homes were equity-rich, according to estimates from ATTOM Data Solutions. That's the equivalent of more than 1 in 3 homeowners having an equity-rich property. Meanwhile, just 2.6 million mortgages were underwater.
Tapping into the equity you have built up in your home can provide you with more options for covering other expenses. For example, if you want to refurbish your kitchen, bathroom or dining room, you may be able to tap into the equity in your home to cover the expenses related to paying for those renovations. You may also want to take advantage of some of your established home equity to help fund the purchase a business or make a down payment on an investment property. All this can be done by refinancing.
Forego mortgage insurance
Many people are under the assumption that they have to make a 20% down payment in order to buy a house. In reality, you can buy a house with as little as 3% down, and if you're a veteran or active duty member of the military, or purchase in a designated area, you may not need a down payment at all.
Perhaps the main reason why this 20% down requirement myth has persisted is due to mortgage insurance. If you put down less than 20% of the house's listed price, mortgage insurance is generally required so the lender can be made whole if the borrower defaults.
If you're someone that currently has mortgage insurance and you want to avoid paying the premiums associated with keeping the policy current, you may be able to eliminate it by refinancing into a conventional mortgage. Since more properties these days are equity-rich, you may have the 20% equity that is necessary to waive mortgage insurance.
There's a caveat
As you can see, the reasons why refinancing can make a lot of sense aside from taking advantage of historically low mortgage rates run the gamut. However, just because a variety of other scenarios exist does not necessarily mean that you should - or will even be able to.
When it comes to home financing, it’s important to explore a variety of alternatives, and make a well-informed decision. You may want to consider speaking with a financial advisor about how your home financing options factor into your broader overall financial objectives and strategies. An experienced loan officer can also help you better understand your home financing options.
The other thing to be mindful of are the requirements related to the home financing application and approval process. Refinancing a mortgage is just like a purchase mortgage, in that you need to have the appropriate qualifications in order to be eligible. Some of the things your lender will look at are your income, your loan-to-value ratio, credit history and FICO® score. Talk to an RMS Loan Officer about the documentation necessary to refinance. Much of the material you'll need is similar to what's required in order to pre-qualify.
Give one of our RMS loan officers a call for more information and guidance about refinancing, and whether it makes sense for you.
*This article was originally posted 1/31/2020. The rates and figures have been updated to reflect data as of June 2021.
Things to Consider
Planning for Extra Expenses of Homeownership
Buying a home is one of the largest purchases you’ll ever make. It’s fair to say everyone has a different view of affordability and what fits into your monthly budget will vary. Figuring out that sweet spot requires more than a pre-approval and a monthly mortgage payment.
If you don’t follow a formal budget, there could be some opportunities for you to control your spending and saving. Budgeting is an important part of preparing yourself for purchasing a home. It allows you to look at the reality of your finances and plan for unexpected costs.
Read below for some tips on how to budget for homebuying and maintenance.
Preparing to Buy a Home
Owning a home, and property, includes upfront expenses, like closing costs, and ongoing costs, like maintenance and property taxes. Aim for a monthly mortgage payment that won’t stretch your budget too far, along with some cushion to handle emergencies and other unexpected fees.
The 28% rule is a guide that determines how much home you might be able to afford. According to this rule, you should not spend more than 28% of your income on your mortgage. This includes all mortgage fees and insurance.
Breaking down your mortgage payment includes the principal, interest, taxes, and insurance. You may be required to have mortgage insurance if your down payment doesn’t meet certain financial criteria. This is to protect the lender in the event you are unable to repay your loan.
Your other existing debt, and recurring debt, will also be factored into the equation. Your debt-to-income ratio can help determine what good and bad debt you have and how that will affect your mortgage.
Do your research. RMS mortgage calculators make it easy to explore different scenarios. Take a look at the different resources RMS provides to help you make important financial decisions about your mortgage.
Plan for Expenses and Maintenance
You may already have been covering household expenses such as electricity, water, heat, etc., if you were renting and if some of those were included in your rent, be sure to add them to your future homeowner budget. Home maintenance helps your home run efficiently and keeps your house in good condition. There are a few popular rules of thumb used to estimate how much homeowners will spend annually on home maintenance.
The 1% Rule: Budget 1% of the purchase price of your home each year to go towards home maintenance.
The Square Foot Rule: Budget $1 per square foot of your house per year for maintenance and home repairs.
Keep in mind that these general rules for home maintenance and repair budgets DO NOT take into consideration many factors like the age of your home, the location, the weather of the area where you live and the condition of your house. All these factors can affect your yearly maintenance and repair expenses.
Prepare for new household items
There are many items that first-time homebuyers may need to purchase for their new home. See below for a list of some of the popular items new homeowners buy within the first few weeks of moving in.
Home safety – Start safe with these suggested tips on keeping your security top of mind.
smoke and carbon monoxide alarms
new locks and keys
curtains, blinds, window coverings, and light timers
Light bulbs – LED bulbs are better quality and have a longer lifespan.
Maintenance and Upkeep:
snow shovel (if applicable)
Nice to Have:
garden hose, rake, garden tools
lawn mower (if applicable)
Our Road to your New Home pamphlet lays out each step for the homebuying process. This may give you insight into when you should consider buying these must-haves and nice-to-haves, keeping your budget in mind.
Making sure things like maintenance, repairs, and additional household items are included in your budgeting will help you decide how much home you can comfortably afford. It pays to speak with local experts early in the homebuying process so you can focus on the right price range and buy your dream home.
Once you feel comfortable with your expenses and your budget is on track, it’s important to review it periodically during the year. Set up a quarterly review and you might be surprised when and where you can move money around. There are a lot of steps in buying a home. RMS wants to make sure you feel comfortable before you sign on the dotted line and have a positive homeownership experience.
Things to Consider
What is a Property Survey?
A property survey can be an essential step when buying a home or other property. It’s a legal document that is helpful for buyers, sellers, lenders and title insurance companies because it provides a detailed assessment of a plot of land.
There are numerous types of property surveys, each with their own special functions, so it’s important to understand the differences to know which one is best for you.
The basics: What is it?
A standard property survey is a map or drawing that delimits a plot of land’s boundary lines and other specific features. Usually conducted by professionally trained surveyors, they help property owners build a detailed and precise picture of their land for mortgage lenders, title insurance companies and other relevant entities.
Features that property surveys typically identify include:
- Property/boundary lines
- Easements Utilities
- Elevation levels
- Regulation compliance
- Hazard areas
Do I need one?
Property surveys have several different uses, but they are most commonly needed when owners want to sell or make changes to their property.
Homebuying & Selling
Surveys are not usually legally required to sell a property, but certain property surveys may be required by your lender and title insurance company based on the type of home financing you're seeking. It might mitigate the risk of future disputes between people on neighboring parcels of land.
Construction and improvement
Owners who want to make improvements to their land should also consider conducting a property survey. Check with your local government for the regulations in your area. Even a small project on private land could have set-back requirements or restricted zones.
Comparing common property assessments
It can be difficult to distinguish between property surveys and other, similar types of property assessments. But the differences are important so it’s helpful to know which situations demand each type.
Property surveys are often confused with plot plans. Plot plans are used to show the dimensions of a given piece of land and to identify the location of buildings, roads, utility lines and other features. Plot plans are intended to show what is on the land, as opposed to property surveys, which show where the plot begins/ends.
Both property surveys and appraisals are essential components when buying or selling a property, but there are key distinctions. Appraisals are used to determine fair market value of a property, whereas surveys are used to create an image of it. Some property buyers/sellers mistakenly believe that these assessments are interchangeable, but they each serve different purposes and need to be conducted separately.
Home inspections are used to assess the conditions of a property, including its electrical, plumbing and HVAC systems, as well as any health or safety features. This visual inspection ensures if there is anything present (or not present) within the home that would affect its value. In contrast, property surveys typically focus on the exact measurements of a property and its property lines and should not be used in place of them.
These types of surveys provide a full assessment of the buildings themselves, as opposed to a mapping of the entire property. They typically include details on floor plans, building sections, interior elevations and other structural features. While property surveys often include some basic information on buildings, these are usually scant.
What are the different types of property surveys?
There are numerous different types of property surveys, each one serving a unique function. Understanding the various types can help you determine which survey is right for your situation:
- Property line/boundary survey. This is the standard property survey, which is used to identify the boundaries between properties. Surveyors conduct this survey by locating and marking the corners of a property. Boundary surveys help determine the precise area and shape of a particular plot of land. They are typically used for construction projects and property buying.
- Construction survey. Construction surveys are used to help plan and layout an improvement project. Unlike boundary surveys, which serve only to identify the lines between properties, construction surveys mark suitable locations for an improvement project to help guide builders and engineers.
- Mortgage survey. Similar to a boundary survey, a mortgage survey identifies property lines and improvements made to the land. They tend to be less precise than boundary surveys, however, so they aren’t typically used for construction projects.
- Right-of-way/easement survey. These types of surveys mark easements and other locations that can be legally used by other entities, typically for neighboring property owners or government/state entities. For private property owners, the most common easements are driveways and utility lines.
- Topographical survey. A topographical survey uses 3-D mapping technology to identify both natural and manmade elevation changes and other pronounced surface features on a parcel of land. They are typically needed for complex improvement plans, like drainage projects or utility designs.
- Floodplain survey. Floodplain surveys are conducted to determine if the property is located in a flood zone to ensure that they are in compliance with all flood and elevation regulations. A lender or title company may require a property to have flood insurance, in which case a floodplain survey would be necessary.
- As-built survey. As-built surveys are conducted after a residential or commercial property has been built to ensure that the entire structure adheres to all regulatory compliances. They are typically required in conjunction with a city or town inspection before a certificate of occupancy can be administered to the new owner.
- Subdivision survey. These surveys are used when property owners want to split a plot of land into two or more parts. Each new plot of land must adhere to all standard zoning and setback regulations in order to be approved by the proper government entity.
- ALTA survey. An ALTA survey combines many of the features of other property surveys into one comprehensive, standardized assessment. They detail boundary lines, improvements, utilities, easements and other major features. ALTA surveys are regulated by the American Land Title Association (ALTA) and the National Society of Professional Surveyors (NSPS).
How a property survey is completed
The same three-step process is used to complete surveys:
- Research. Surveyors will conduct detailed research of all information pertaining to the properties, including deed history, a title search, and legal descriptions to build a complete conceptual design of the property layout.
- Fieldwork. Surveyors will then visit the property itself and mark different boundary points and other areas of significance.
- Mapping. They complete the process by drawing a sketch of their results. More sophisticated surveys will be mapped using GPS or computer-aided design (CAD) technologies. The final product is presented to all relevant parties.
How can Residential Mortgage Services help
Property surveys can be difficult to navigate, but they don’t need to be. When applying for home financing, we'll let you know upfront what surveys are needed for your particular situation. For instance, if a class D survey is required as part of the mortgage loan, RMS will include the cost in the Loan Estimate and will also select the survey company. Understanding the basics and learning how to distinguish between the different types can make you feel more confident when discussing options with your lender.
If you are looking to obtain a property survey for your own records and interest, start with your local property office as there may already be one on file.
Taking out a mortgage is a major life decision, so it’s important to make sure you’re following the right steps to ensure the process is as smooth as possible. Experience the RMS difference for yourself today!