Renting vs Purchasing a Home
What Assistance Can I Get When Renting?
The Department of Housing and Urban Development (HUD) may provide assistance through the Section 8 Housing Choice Voucher program. Section 8 allows Public Housing Authorities (PHAs) to cover most or in some cases all of your rent for select housing units.
Do I Qualify For Section 8?
In order to qualify for the Housing Choice Voucher program you mast meet certain income requirements. Public Housing Authorities must provide 75% of their vouchers to applicants in the Extremely Low Income category (within 30% of an area's median income). Some of a PHA's vouchers may go to those within the Very Low Income category (within 50% of an area's median income).
What Assistance Can I Get When Buying A Home?
When it comes to buying a home there are several different types of loans that can help you fine tune a payment play to your goals and level of income. The three primary types of assistance loans used when setting up a mortgage are:
FHA Loan Requirements
- Steady employment history (2yrs)
- Social Security Number
- Down-Payment (minimum 3.5%)
- Owner-Occupied Residence (must live in the property you took out the loan for)
- FHA-approved property appraisal
- Front-End Ratio (mortgage + fees + taxes + insurance must all be lower than 31% of gross income 40% may be approved with justification)
- Back-End Ratio (mortgage + all loans and payments must be lower than 43% of gross income, 50% may rarely be approved)
- Minimum credit score of 580 for a minimum down payment of 3.5% or 500-579 with a minimum down payment of 10%
- Two years out of bankruptcy
- Three years out of a foreclosure
- The loan must be within the set Loan Limit for your area
VA Loan Requirements (at least one)
- You have served 90 consecutive days of active service during war time
- You have served 181 days of active service during peacetime
- You have 6 years of service in the National Guard or Reserves
- You are the spouse of a service member who has died in service
- You are the spouse of a service member who has died due to a service-related disability or injury
USDA Loan Requirements
- Must have very low to moderate income
- Home must be in a rural area (population under 35,000)
- U.S citizen or permanent resident
- Must maintain an escrow account with your lender
What Are The Advantages of Renting?
- When renting you can move as soon as your lease is up. Renting allows people a great deal of mobility.
- When renting you don't need worry about managing the property. No mowing the lawn, no paying to have a handyman fix the sink, no need to fix things on your own, these responsibilities all usually fall on the property owner.
- You do not have to pay property taxes. You will only have to pay your rent payment.
- You don't have to worry about finding good homeowners insurance or even paying it.
- If your essential appliances are outdated to the point of inadequacy you may get a free upgrade. No more buying a new stove yourself.
What Are The Disadvantages of Renting?
- You will not be able to make many modifications to your living space. Want to renovate your home? You want to turn a closet into more floor space? You want more power outlets? Sorry you don't own the place. Some rentals won't even let you nail decorations to the walls.
- There may be restrictions on pets. Some types of pets may flat out be forbidden. You may have to pay pet fees for others.
- Your rent can be raised by any amount at any time. If you don't like it you'll have to leave.
- You do not get the feeling of pride and accomplishment of owning your own house.
- Your monthly payment heavily depends on the health of the housing market. If the economy is not doing well neither will your wallet.
What Are The Advantages of Buying a Home?
- You have the freedom to alter your house in many ways. Unlike renting you can make any legal renovations you want.
- You can own any type of legal pet.
- Interest on mortgage payments may be tax deductible unlike rent interest.
- You usually get a larger property size.
- You can choose what appliances you want. You can do things your way and get the latest and greatest washing machine, who knows, maybe its a top loader.
- You may be able to find a mortgage to fit your budget and goals.
- No matter what happens to the market your payments will remain the same.
- Mortgage payments are usually less expensive than rent payments for similar properties.
- You get all of the pride and joy associated with owning your own house. You can do almost anything you want with it.
What Are The Disadvantages of Buying a Home?
- Down payments can be costly.
- You have to do all of the work and maintenance on your own.
- You have to get home owners insurance.
- You will have to pay property taxes.
- Most of the time you will have to buy furniture and appliances on your own.
- You will have a hard time moving. In order to move you will need to find someone to buy or rent your home.
Who Should Rent and Who Should Buy?
Buying a home is the biggest purchase most people will ever make. It is important to make sure you are financially ready for such a large commitment. Buying a home is not the best idea for everyone at every stage of life. Renting has its place.
- have a good amount of savings
- have stale income
- want to stay in your area for more than two years
- have a good credit score
- have money to put aside every month
- can save up for a down payment + closing costs
- do not have stable income
- value mobility
- do not want to make a big commitment
- do not want to take care of your own property
- have a poor credit score
- are trying to save up for a down payment
Arthur has been in real estate for over 15 years. He started his career as a real estate agent and then started investing himself. Arthur has experience navigating many different financing options, multi-family and single-family rentals, commercial real estate, and restoration projects.
June 23, 2022 (Updated June 24, 2022)