Curated questions and answers about common Homeownership concerns.
Frequently Asked Homeownership Questions
Detailed Homeownership Questions from Affordable Housing Online users.
Is it better to buy a home or rent?
Low to moderate income buyers are able to purchase an affordable home; and many studies show that home ownership most likely will be cheaper and more beneficial than renting in the long run. But for some people, renting may better fit their lifestyle and situation.
So is buying a home the right thing for low to moderate income buyers?
The Advantages and Disadvantages of Homeownership:
It is cheaper to pay a mortgage than to pay rent. Usually true. However, it takes years before your mortgage payment starts to significantly pay down the actual loan rather than just go toward interest fees. In the end, you will own your home - you will never own your rental.
A good apartment can be hard to find in your area. In some areas of the country, housing stock for sale is tight, also.
Fixed interest rates. If you take a fixed interest rate mortgage, your monthly mortgage payment will be the same today as it will be at the end of the mortgage. Rents will go up.
Home appreciation. If you buy in the right location, the worth of your home will most likely rise. According to a CNBC report, between 1940 and 2000, and after allowing for inflation, average home prices in the USA quadrupled.
Privacy. You don’t have to hear loud music or yelling or noises from the other side of the wall.
No pet fees. You can have any size or type of pet you want without paying a pet fee, as long as you aren’t breaking any local ordinances (no tigers or alligators). Renters usually have to pay a fee for their pets.
You can decorate all you want. If your child wants Spiderman wallpaper, they can have Spiderman wallpaper (unless you told him no).
You are your own landlord and you decide who can live with you or not. But you are also your own maintenance staff.
Fewer fees to worry about. No having to pay high late payment fees, or fees to add on another household member, or large security deposit fees. With a mortgage, there usually will be late fees ranging from 3 to 5 percent of your monthly mortgage payment if you are more than 15 days late, which still, most likely, will be lower than the late fee charged on a rent payment.
You will provide stability for your children. Your family won’t need to move in twelve months or sign a new lease that could be for higher rent. You will also have something to pass on to your children.
Advantages and Disadvantages of Renting a Home:
No major maintenance costs. You don’t have to pay for repairs from normal wear and tear. If the furnace goes out or the dishwasher stopped working, you don’t have to pay to replace or repair, which can be expensive. But, you are at the mercy of your landlord. Hopefully, the problem will be fixed in a timely manner. But it’s a headache to go without hot water for a week; waiting on maintenance to get to you.
No real estate taxes. You pay no property taxes because you don’t own the property.
Utility bills can be smaller. The smaller the home, the cheaper it is to heat and light it. Many apartment complexes pay the water and sewer bills also. For your own home, you are responsible for all the utilities.
Moving is easier. You can move at the end of the lease if you want. You cannot easily move from the house you own. If you decide to sell, it could take months and a possible loss on your investment.
No worries about the value of your property decreasing. If you don’t own the property, you won’t have to face the possibility of your property losing value.
Insurance payments are smaller. Homeowners insurance premiums are more costly than renters. Homeowner’s insurance has to include coverage for damages of the structure, loss of personal property, liability against any possible lawsuits and in some areas, flood insurance. Renters insurance covers loss of personal belongings and is cheaper because it covers less.
Homeownership means you are working to own your own home or you have paid off your mortgage and now own your home.
This makes you more wealthy than a renter because you own something worth thousands of dollars. You have become a permanent member of your neighborhood or community and you have an investment that can substantially rise in value over the years and be passed down to your children. This also makes you responsible for maintaining and securing your property for as long as you live there. For more information about the pros and cons of being a homeowner, read the Affordable Homeonwership Guide.
Homeownership can be better than renting for a family, but it depends on the family's current circumstances. Low-to-moderate income buyers are able to purchase an affordable home these days, and many studies show that home ownership most likely will be cheaper and more beneficial than renting in the long run. But for some people, renting may better fit their lifestyle and situation. For more information about the pros and cons of buying a home, read the Affordable Homeownership Guide.
Yes. You can buy a home without a realtor, but be prepared to do your homework.
The first step is to get pre-approval for a mortgage from a bank or mortgage company.This will tell you the amount of money a bank will be willing to lend you. Next, research your state laws regarding a purchase of a home.
Look at the neighborhood you want to buy in and check the sale prices of other comparable homes. Ask for a Seller's Disclosure once you find the house you want to buy. This will tell you of any defects, structural problems or maintenance problems with the house. Also, enroll in housing counseling classes offered by your state 's housing or finance agency.
Not using a realtor will save you about 6% of the price of your home. On the other hand, a good realtor will help you negotiate a price, arrange for an inspection, explain the closing procedure and even advise you on the right mortgage.
There are many more steps and hurdles to buying a home, so educate yourself before going it alone. Read more about homeownership in the Affordable Homeownership Guide.
Dollar Homes information can be found on the HUD website. A dollar home is a home that was mortgaged through the FHA but have been foreclosed and is now owned by the FHA. The home is put up for sale and if the home does not sell in six months, then the home is offered for sale for a dollar.
To get more information, go to the HUD website found here. Once you get to the map of states that have the Dollar Homes program, click on the state for which you want to find dollar homes. If you see one that interests you, click on the property case number. From there, click on Agent Info and contact information will pop up for the Asset Manager, Field Service Manager and Listing Broker. Contact the Listing Broker and let them know you are interested in the Dollar Homes program.
The bank or mortgage company who gave you the mortgage is considered the owner of the property until you pay off the mortgage. However, you are responsible for making the monthly mortgage payment, repairs and maintenance for the home, payment of any property taxes and payment of insurance premiums.
The mortgage interest rate is the price you pay for borrowing the money to buy your home. The interest rate is an annual rate but is calculated and applied as a monthly rate. The lower the interest rate, the less you will have to pay.
For a fixed rate mortgage, to find the monthly amount of your payment that is paid in interest, take your interest rate and divide by twelve. As an example:
Your mortgage interest rate is 3 percent. 3.0 divided by 12 = 0.25, the monthly rate is 0.25. If the mortgage is for $100,000, calculate $100,000 times .25 percent, which is $250.00. You will pay $250.00 of your monthly mortgage payment in interest for the first monthly payment.
So, if your monthly payments were calculated to be $506.90, $250 will go for interest and the rest ($256.90) will be used to pay down the mortgage (principal). Each month, the interest payment will go down and more of the monthly mortgage payment will be used to pay on the principal. This happens because as the months go by, you are paying the principal down and the interest on the monthly amount of your mortgage is less.
So, on a $100,000 dollar mortgage, on the first month you paid $256.90. So, $100,000 minus $256.90 = $99,743.10. For the second month, of the $506.90, your interest will be paid on $99,743.10. You will pay $249.35 in interest, and $257.55 towards the principal. This happens for every month of your mortgage.
You will wind up paying thousands in interest by the end of the mortgage. At the closing, the bank or mortgage company should give you an amortized payment schedule showing you how much you will pay in interest over the duration of the mortgage. This amount could be a shock to a first time homebuyer, but that's the way it is.
Mortgage rates will generally go lower when fewer homes are being put up for sale and fewer new homes are being built.
This happens because of a weakened economy - more people are unemployed and wages decline leading to less demand. The Federal Reserve policies also effect mortgage rates, and the economy in general.
If the Federal Funds rate goes up or down, it effects the mortgage interest rates. If more money is made available by the Federal Reserve, mortgage rates will fall. If the Federal Reserve decides to tighten up the supply of money, mortgage interest rates will rise. There are other factors that effect mortgage rates too, such as the rate of inflation and economic growth.
Are you eligible for Section 8 if you own a home or other real estate?
You may or may not be eligible for Section 8 if you own a home or other real estate, depending on the income you earn from these assets.
Section 8 Housing Choice Voucher eligibility is based on income, not assets. So, it is possible to own a house or other real estate and still qualify for Section 8.
However, income for the purposes of determining Section 8 eligibility must include the income you earn from these assets. So, if you have equity in the house (meaning you owe less on the mortgage than the house is worth) or generate rental income in excess of your expenses, a certain amount of annual income is generated by the equity. This income is counted toward your income eligibility limit.
Let's say you own a house worth $150,000 and you have a mortgage on it of $155,000 (this is actually pretty common since the foreclosure crisis began), the house is not an asset, it is a liability and will not account for any income when calculating eligibility.
However, if you have a mortgage of $130,000 on the same house, you have $20,000 of equity in the house. Then, the housing authority must allocate income from this asset. HUD uses a passbook savings rate of 3.5% to calculate income on assets. So, the equity in the house would add $700 per year to your other income when calculating eligibility.
The actual rules on this are a little more complex. You are allowed credit for the costs to liquidate an asset. So, if in selling that same house you would incur a real estate commission of 7%, or $10,500, then, the income from the asset would actually be calculated on an asset value of $9,500, in effect, lowering the amount of income the housing authority would consider when determining eligibility.
This policy applies to many assets including cash, stocks, bonds, jewelry, coin collections and other liquidatable assets. The policy doesn't apply to necessary personal property and interests in an active business. To read more take a look at Exhibit 5-3, Summary of Asset Inclusions and Exclusions in the Housing Choice Voucher Program Guidebook.