Thursday, August 11, 2022

Is Paying Mortgage Like Paying Rent

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Rent Space In Your Home For More Income

âItâs cheaper to rent than paying off a mortgageâ? | Mortgage myth busters | HSBC UK

For individuals who dont already have extra income to commit to reducing the amount that is owed on the principal of a mortgage, consider getting the extra cash by renting out space in your home to travelers or boarders. Even if the rental is only offered during certain times of the year, it can make a big difference in going towards an extra mortgage payment here or there.

For example, if you were to rent out a room only 10 nights a month, for $50 a night, thats an extra $500 a month that can be put towards a mortgage.

Why Might This Be Important To You

If you are currently renting a home and thinking about buying, the timing of your closing on your new home could be an important factor, especially if you are keeping a close eye on your finances. Your REALTOR® can help you with this timing, especially if you have had a conversation about what your goals are, financially and logistically, with your closing. Depending on how much time you have between hiring your REALTOR® and when your lease ends, you may have a lot of flexibility .

Let me paint a picture for you. Let’s say you are currently paying $1,700 a month in rent, and your lease expires on October 31. You have obtained a mortgage pre-qualification to purchase a home and your mortgage payment, for the type of home and price point you’re considering, will be around $1,350 a month . You first contact your REALTOR® on June 27th to start talking about purchasing a home and you are eager and want to start looking at homes right away, because your landlord has told you that, if you need to go month-to-month past October 31st, your monthly rent will go up to $1,950 per month.

Here are a few scenarios to think about:

It’s all about the timing and working with a good REALTOR® and lender. A REALTOR® who takes the time to get to know your unique situation can customize your search, explain the timelines and benchmarks in the transaction, and create a scenario that is right for your real estate goals and finances.

She Also Believes Men Should Make More Money And Contribute More

What kind of BS is that, that you want equality in a relationship but then want the guy to make more and contribute more?

Pardon me, equality is simple EQUAL. Not unequal.

I am not on board with her on that, for the record. I like true equality, and with it comes the good and the bad.

Moving on I do not know the whole financial budget, situation, etc, only what I am reading, but so far this is what I am thinking:

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More Leveraged Properties = More Work

The more properties you own, the more work you have to do to manage those properties. And more leverage typically means owning more properties with thinner margins.

To illustrate with a simplified example, imagine you have $200,000 in cash. You want to invest that money in rental properties, and you have a choice: you can either buy one $200,000 rental in cash, or you can buy five rental properties with a 20% down payment on each.

For the sake of the example well assume the cash flow is the same, at $1,400/month. So, you can either earn $1,400/month from managing one property, or earn $1,400/month from managing five properties.

Which takes more work on your part? Which complicates your tax returns and accounting more?

The five leveraged properties, of course.

In real life, the math usually works out differently, with leverage improving your cash-on-cash returns. But you get the point: more properties require more work on your part.

Lets try one other example, tying it back to retirement. By the time you retire you own ten rental properties, that earn you $2,500/month. Youve built up some equity in them and realize that you could sell five of them and pay off the mortgages on the remaining five properties. By doing so, you cut the property management work in half, but boost your monthly cash flow to $3,000.

Less work, less debt, less risk, fewer headaches, and more cash flow: a retirees dream.

When Does It Make Sense To Pay A Fee

Paying rent is like paying a mortgage, it

The easiest time to justify adding an additional fee to your rent is when you need to meet a minimum spending requirement to trigger a sign-up bonus especially with cards requiring $5,000 or more in a certain time period. Some cards, such as the Capital One Venture Rewards Credit Card, require you to spend $20,000 in the first 12 months from account opening to lock in the full-fledged 100,000 bonus miles.

A hefty rent or mortgage payment can make it a lot more feasible for you to meet the minimum spending requirements to earn a cards sign-up bonus or welcome offer. Otherwise, calculate the value of the points or miles youll earn to determine if they are worth more than the fee youll pay. If the fees for paying with a credit card are greater than the earnings you accrue, its likely a losing proposition to pay your rent or mortgage with a credit card.

However, when Plastiq has promos, or if you get enough friends and family to sign up through your promo code , you can come out ahead.

Related: You may have to pay a surcharge to use your credit card heres what to know

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Save Up A Down Payment

Conventional lenders require some amount of money at closing. You may find a lender willing to accept as little as 5% for a down payment, but most lenders want 10% to 20%. And if you don’t come up with that 20%, you’ll have to pay private mortgage insurance, a costly premium that gets added to your housing payments.

The fact that timely rent payments will count toward mortgage eligibility is a good thing. But the sole act of paying your landlord on time won’t guarantee that you’ll be able to borrow money to buy a home when you want to. Work on these steps to boost your chances, and with any luck, your efforts will make it possible to get a home loan — and an affordable one at that.

Now Lets Add Some Utilities And Maintenance To The Equation

Renting is pretty awesome in that you arent responsible for much more than your own personal belongings.

Everything inside the unit thats bolted down is mostly the landlords problem, assuming it breaks.

For example, the landlord is on the hook if the fridge or washer/dryer malfunction, or if the HVAC system fails.

The renter simply calls the landlord and tells them it need to be fixed, on their dime.

If youre the homeowner, these problems become yours, and you better believe there will be something, each and every year.

As such, you should generally earmark a couple hundred bucks a month for potential repairs and maintenance. It could in fact be a lot more than that, but at least start there.

Then there are the monthly utilities, which may have been paid by your landlord, or perhaps baked into the rent.

As a homeowner, youre now paying for trash, water, sewer, etc. out of your own pocket each month.

Lets add another $250 a month in utilities to the mix, along with the $200 in repair/maintenance.

Were now up to $1,900 a month all in for your house, a far cry from the $1,012 you may have seen advertised.

Its nearly double the original estimated payment you saw, which made homeownership look so enticing.

And remember, that monthly payment requires a hefty $60,000 down payment. If you dont have that, expect an even higher monthly outlay, and possibly mortgage insurance as well.

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How Often Do You Plan To Move

If you move every few years or even more frequently than that, renting may be your best option. Every time you buy a home you have to pay for closing costs, a home inspection, moving costs and possibly an appraisal. These costs can quickly add up to thousands of dollars. Then when you sell your house, you have to pay a realtor a commission. On a home that sells for $250,000, the realtors commission could be as much as 7%, or $17,500. Your house will have to go up a lot in value over a few years for you to even break even on this deal let alone make money. While home prices tend to go up over time, they dont go up every year. In fact, they can go down for a number of years as well. For someone who moves often, buying a house every few years can be a risky investment.

Addressing The Racial Gap

Paying a mortgage vs. paying rent

Fannie Mae says the new effort takes aim at the persistent racial gap in housing. Just 45 percent of Black Americans owned their homes in the second quarter of 2021, compared with nearly 74 percent of White Americans, according to the U.S. Census Bureau.

This gap has stood firm since the early 1900s, and it stems in part from historically racist government policies that disadvantaged Black Americans and stymied their ability to build wealth and economic stability, Frater wrote. It has been estimated that if homeownership rates were the same for all races, the wealth gap between Black and White families would be reduced by 31 percent.

Some 45 million American consumers have credit histories that are too sparse to qualify for mortgages. The Consumer Federal Protection Bureau refers to this segment as the nations a description that disproportionately includes Black and Hispanic Americans.

Fannie Maes new policy focuses on consumers who have bank accounts, so its designed for those who are close to being creditworthy. It wouldnt help the small share of Americans who dont have bank accounts.

We send a lot of customers away because theyre not credit-eligible, Sarma says. This is going to make dreams of homeownership available to a lot of customers who are turned away by us.

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Renting Can Work To Your Advantage Financially

Finally, you can make renting work to your advantage financially, too.

If you live in a market where you can rent an apartment for substantially less per month than you could own a home, you can invest the difference. And the difference doesnt have to be huge to make an impact!

For example: lets say you rent for $1,000 but would have to pay a $1,300 mortgage payment on a comparable home. Thatd be $3,600 each year that you can invest.

Unlike home equity, the savings you earn by renting are liquid. You can use them to build an emergency fund, pay down student loan debt, or fund a retirement account none of which you can do with home equity.

What Is Rent To Own

Rent to own starts paying an option fee, for the right to purchase Park Place. So, if the property costs $350 as Park Place does you pay $10.50, or 3 percent of the cost of the property to retain the option of purchasing it. This gives you the first option to purchase the property. You pay the option fee the first time you land on the property. Then, when you decide you want to eventually purchase it. In real life, you would pay the option fee when you sign your lease affirming that you want to purchase the property when you qualify for a mortgage.

Then, each turn you pay a given amount of rent money to the owner of the property, in this case, the bank. In real life, you pay rent to the seller monthly. In addition to the rent, you pay a small premium. Eventually, you have enough to put a down payment on the property and get a mortgage to purchase it!

Down payments are usually about 20 percent of the cost of the property. In the case of the Park Place example, thats $70. Youve already saved $10.50 toward it with your option fee. So, in this example, you only have $59.5 left to save for the down payment. Each turn, you pay $8 in rent and a $3 premium payment, which is $11 each turn. That means in 20 turns, you have saved enough to get a mortgage and purchase the property!

For a more thorough breakdown of rent to own, check out How Rent to Own Works: A Guide.

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Rent To Own And Mortgages In Monopoly

The cool thing about the above examples is you will own the coveted Park Place property without having to have the full $350 in cash when you land there. If you play Monopoly by its true rules, if you land on Park Place and cant leverage enough money from your other assets to pay for it, you cant buy it. You must pass over the spot and let whoever lands there next purchase it.

Thankfully, in real life, you have the options of rent to own and mortgages. You dont have to let your dream home get away from you.

Most Concerning To Me Is The $15k Debt

Renters Are Paying A Mortgage  Their Landlord

During the time together, they mention that he racked up $15,000 of debt and is stressed, and doesnt think he should give her that extra $200 a month for the home she paid for.

I also read something strange about how the bills werent equal but I have no details on this and therefore cannot comment.

Bottom line to me yes he should pay something relative to his income and it shouldnt be a free ride especially if he is working full-time, and healthy and bills SHOULD be split 50/50.

What I am most concerned about is money management, or the lack thereof.

$15,000 is a nice chunk of change.

Why? How? Was he paying MORE than he could afford? In which case, I am not on board with the situation, and will reconsider my $200 stance, but was it all just consumer debt for splashy vacations and dinners he couldnt afford?

Whatever the case is, that debt being racked up is more concerning to me, if you are planning on getting married to someone.

How? Why? Where did it go? Is this going to be like this forever?

If you cannot live with the result of being with a debt-happy spender, when you are a frugal, debt-avoiding saver.. you need to say something.

You need to be on the SAME PAGE. The same MONEY PAGE so that you dont split or divorce because of money.

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Options For Paying Rent With Other Cards

Some third-party service providers will allow you to pay your rent, mortgage and almost any other bill with virtually any debit or credit card. However, fees range from 2%-3% per credit card payment, or theres a flat fee for payments made with debit cards.

Heres a chart of third-party payment providers that accept credit cards, along with the respective fees.

The Joys Of Being A Landlord

Being a live-in landlord means living near your renters. That can be good and bad such as if theyre having a loud party and you have to go tell them to quiet it down. And, of course, theres maintenance, which can require being handy if you want to save money and do the work yourself.

Riley Adams, a licensed CPA in Louisiana who has a personal finance blog aimed at helping young professionals find financial independence, says he spends four to eight hours per month maintaining or repairing the two-unit house that he and his wife own in New Orleans, and another four to eight hours each month to upkeep a short-term rental behind the house.

The couple lives in one part of the house, and long-term tenants live in the other half. Adams part of the house has a separate side entrance. A separate unit behind the house earns them income as a short-term rental on AirBnB.

Between the money earned from our tenants and the short-term guests who stay with us, we completely cover our monthly mortgage and associated housing expenses, Adams says. This allows us to live in the space for free and house hack.

They used a traditional 30-year mortgage to buy the property, and included the expected rental income in their income total used to qualify for the loan, he says.

They keep busy during busy tourist times in New Orleans of November through May, he says, and both he and his wife are flipping the unit between guests.

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Consider Your Financial Situation And Goals

The first thing to consider when choosing between renting and buying a home is where you are financially. Be honest with yourself about your current situation and seriously consider both your near-term and long-term financial goals.

A house will cost you significantly more upfront, but could save you substantial money over the long run. Its important to think about how your finances will be affected by both scenarios, so you can be strategic in your decision making.

What Does This Mean To You When You Buy A Home

Paying a mortgage vs. paying rent

When you’re renting, paying in advance means you’re paying on the first of the month for the privilege of remaining in the property for the coming month. In other words, you pay on May 1st for the period of time from May 1st through May 31st.

With a mortgage, however, you actually pay in arrears, meaning for the previous month during which you’ve already occupied the home. That means your May 1 payment actually pays your mortgage for April 1 through April 30.

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