In today’s mortgage and real estate market, it is still a prudent choice to own a home, rather than rent. Renting is appealing because there is less responsibility (no home maintenance costs), it is easier to pick-up and move, and there are no property taxes to pay. Home ownership has advantages, too. The property taxes and mortgage interest costs, which are significant, are tax deductible. Interest rates are still low enough to make renting and owning almost the same monthly payments. In many areas of the United States, home values are on the rise, meaning the equity gained from home ownership is a real nest egg.

A Case Study in First Time Home Ownership During the first quarter of 2005, a professional writer and college professor came to Breakwater Mortgage to see if she would qualify for a mortgage to purchase her first home. She is one of the best case scenarios for a loan officer, since her credit rating was in the 740-790 range. However, Ms. Kirwin was partially self-employed, and so did not qualify for a low interest FHA (Federal Housing Authority) loan, since these loans are mainly designed for salaried individuals. Since she was employed part-time at a university, she could document a portion of her income. This meant that Ms. Kirwin was still able to apply for a stated income loan product instead of a no doc loan which would come with a higher interest rate. With a high credit score and some measurable income, I could guarantee she would obtain financing. Ms. Kirwin had to put 5% of the home value as a down payment, and she began saving in earnest for a $100,000 property.

Advantages to Buying a Home in a Hot Market Ms. Kirwin lives in a desirable real estate market. Home values are on the increase. In fact, home values are rising 15% annually or more. If she continued to rent for the next five years, she would have priced herself right out of the rental market. Clearly, it was time for Ms. Kirwin to buy. Additionally, she was in need of more tax deductions for her home based business. Ms. Kirwin was deducting a portion of her rent and utilities, but assuming a mortgage with interest and property taxes doubled the amount she could deduct.

Cost Comparison: Renting Versus Owning The self-employed writer and college professor was paying approximately $600 per month to rent a suitable home. With a great credit score and an interest rate of 6.25%, Ms. Kirwin was able to close on a 30 year fixed rate loan with a loan payment of $650 per month. She chose to live in a condominium and pay the additional homeowner’s association fee, so she does not have to maintain the yard or exterior of the property, which saves her both time and money.

Interest Only Loan Ms. Kirwin could have qualified for an interest only loan product, which would have eliminated the need for a down payment. Her interest rate on an Adjustable Rate Mortgage (ARM) could fluctuate in 3-5 years. Because she lives in a fast moving real estate market with home appreciation almost guaranteed, an ARM would work have worked well for her. Since she was all ready well on her way to saving $5,000, she decided to aim for the traditional 30-year fixed mortgage instead. Once I educated Ms. Kirwin about the different loan products that were available to her, she made her own decision about which loan was right for her. She now owns her first home, which is basically an inflation protected investment. Ms. Kirwin has more tax deductions at the end of the year, and could conceivably end up netting more this year than past years when she paid rent. If she decides to leave the area or outgrows her space, she can rent her property for an income flow. Every time she pays the mortgage she is building equity. If it ever becomes necessary, Ms. Kirwin can borrow money against her property in the form of a home equity loan. And, now, she has something to sell – an investment which is convertible to cash in the future.

I realize that home ownership is both a personal and financial issue. However, with interest rates still lower than they were in early 2001, it is still not too late to consider buying a home rather than renting indefinitely. Purchasing a home is a step towards a more stable financial future. Housing costs are certain to increase in desirable areas of the United States. By purchasing a home, a first time homebuyer can put the lid on housing costs and still maintain a comfortable lifestyle in secure, quiet surroundings. Renting a home does not offer these certainties, while home ownership does.

Kevin Onizuk has been in the mortgage business since 1994 and co-founded Breakwater Mortgage in 2003. His background covers many aspects of lending. Breakwater Mortgage has one office in Virginia Beach and two offices in Williamsburg, Virginia. Kevin Onizuk and the Breakwater Mortgage team are dedicated to providing the highest level of service available in the mortgage industry.

kevin onizuk may be contacted at http://www.breakwatermortgage.com or kevin@breakwatermortgage.com