Is It Better to Buy or Rent a Home?
Miami is still one of the most demanded real estate markets in the Nation
In the past five years, rental prices have increased between 25% and 30% in Miami
By: Edda Pujadas
DORAL, FL – Did you know that when you pay your monthly rent, what you are really paying for is your landlord’s mortgage? This thought can help a lot of people decide if it is best to rent or to buy a home.
Even when a lot of people believe that renting is better, in the long run a person that has been renting for a long time will have only paid for the place in which he lived for a while, instead if you purchase your own home you will be investing in a property that will provide you with a roof for your family and can even give you the possibility of future income in the case that you become the landlord and start making money by renting your property.
For many people, renting is still a good option mainly because they are not very sure of where they will be willing to live in the long or medium term, they do not want to be subject to financial evaluations, they do not have a good credit score and the most important is that they do not have enough money to pay for the down payment and closing costs.
This has allowed rents in Miami to increase in the last five years between 25% and 30%, also as time goes by the requirements requested from the landlords to accept a tenant have increased and landlords are requesting up to three months of deposit in order to rent a property, this is an amount equal or in some cases even higher than the down payment in case you want to buy your own home.
Those who support the theory that it is best to rent than to buy a home also state that it is better to invest in high yield alternatives such as stocks or bonds, and they defend that the prices of homes do not increase enough to make them generate a high yield dividend in the long term and at the same time they do not want to incur in monthly expenses that they currently do not have as tenants, such as HOA maintenance fees, property taxes, and insurance.
Those that prefer to buy instead of renting indicate that one of the main benefits of purchasing a home is financial and emotional stability, both for them as individuals and for the family.
Buying a home has always been recognized as a way to build up family wealth, it implies changing your lifestyle, it motivates you to become an active member of your community and allows you to build income and profit on your property.
A real estate agent is the correct person to provide advice on the correct steps to have a successful purchase.
LIVING IN MIAMI
One difficulty today for both tenants and buyers of homes is that Miami is now considered one of the most expensive places to live worldwide. Have you asked yourself why? Well, basically due to the benefits of living in this city.
According to the Association of Realtors of Miami, the strategic location, weather, international scene, beaches, and parks together with its financial and touristic importance in the world, make more people be interested in living or investing and living in Miami.
So, if you are one of those people that wants or needs to live in Miami, think that after three years of paying a rent of, let’s say $1,750, you will have contributed with at least $63,000 to the landlord of the house you are living in, and you have been helping him pay this amount to his mortgage. If we calculate that you pay for this monthly rent for 30 years, which is the common time in which a mortgage is paid, you will have paid $630,000, this amount is more than enough to have purchased your dream home.
You also need to remember that a monthly mortgage payment reduces the amount of your loan and it includes the property tax, HOA maintenance, and insurance fees. You can also get two benefits that you will never have as a tenant, the equity on your property and the tax benefits, in the specific case of properties used as your primary residence, such as Homestead exemption.
Purchasing a home can actually be one of the most important decisions in anyone’s life, it is also important to take into account things such as accessibility to the home that you want to purchase, for this it is important to analyze the price of the property, also your level of income and expenses and the mortgage interest rates that as of today are at 4% according to Fannie Mae.
THE MORTGAGE
Let’s get back to the main obstacle to buying a home: money. Dexiel Diaz, financial agent for CMG Financial guides us on the main mortgage programs that are available today, some of which allow you to buy a home with only 3% of down payment.
Diaz tells us in the first place about first-time buyer loans, these are best known as FHA. “In order to get approved for this type of credit, the buyers must have a minimum credit score of 580, have at least two years in their current job and prove this with their tax return documents.”
With this type of mortgage, you only need to give a 3.5% of down payment and you can get an interest rate under 4% and 30 years to pay for your home. The pre-approval letter takes only 24 hours and the loan will be effective 30 days after this.
We also have conventional loans for which you will need a minimum credit score of 620 and a 3% down payment. For these loans, your financial and employment stability are also important. “Within these conventional loans, there are two programs: HomeReady and HomePossible. For these you can qualify for a course that can help you get interest rates under 4%, explains Diaz. He also states that under these modalities, you can also be pre-qualified in 24 hours and your loan will be available in 30 days.”
“Another type of loan is the “Bank Statement Loan”, in this the lender conducts an analysis of the last twelve months of statements of account of the person requesting the loan. This person must have a credit score of 660, be able to put 10% in down payment and the interest rate for this type of loan is around 5.125%. There are also loans for foreigners, for these the down payment is between 20% and 25%.
Regarding closing costs, it is recommended to explore different options such as contributions from the seller, these can get up to 6% in the case of the FHA loans and up to 3% in case of the regular loans.