| You can use a mortgage calculator to figure out your | | | | you decide to buy, try to add a little bit to the principal |
| borrowing power with the bank and they'll tell you | | | | each month so that you don't have to pay as much |
| exactly what you can afford. The bank uses a | | | | interest. |
| formula that you might have heard of called your debt | | | | Let's assume you can rent for $1,000/mo or buy a |
| to income ratio. They basically take all you bills and | | | | $150,000 condo and pay $1,350/mo. The 1,300 includes: |
| match them to your income to come up with a | | | | Monthly Mortgage Payment - $850.00 |
| percentage of how much you spend and how much | | | | Taxes/Insurance - $300.00 |
| more you can afford. This is good to know whether | | | | Condo Fee - $200.00 |
| you want to rent or buy because it tells you how | | | | Everything there is basically the same as a rent |
| much you can afford for a monthly payment. Renting | | | | payment, except you didn't need a down payment or |
| and buying are fairly close when it comes to the size | | | | 2 months worth of work trying to buy the home in the |
| of your monthly payment. The difference is the down | | | | first place. If you take a look at an amortization |
| payment, harder credit check and real estate fees | | | | schedule you'll see that the principal during the first |
| when you sell. Renting is definitely a little cheaper, | | | | year is about $165/mo. That's your only savings |
| easier, and quicker in most cases so if you need | | | | compared to renting. So in this 3 year case you will |
| something right away and you know it's going to be | | | | have spend an extra $185/mo by buying instead of |
| short term then renting is for you. | | | | renting. In 3 years that equals $6,660.00 PLUS you |
| There's a couple of key points to figure out that will | | | | would need to sell the condo with real estate fees and |
| help you realize whether you should be renting or | | | | transfer of ownership fees. |
| buying. First, how long are you going to be there? If | | | | However, buying in the long term is MUCH better. |
| you say anything less than 3 years you probably | | | | Extend that same circumstance out over 15 years and |
| shouldn't buy. Either that or plan on keeping it and | | | | you'll see a big difference for a few reasons. Look at |
| renting it to someone else. You can have a | | | | the amortization schedule again and see that during |
| management company do it for you if you need. They | | | | the 12th year the principal is now $325.00, PLUS you |
| only charge about 10% of the rent each month. The | | | | bought the condo and no longer have to deal with |
| only differences between buying and renting is Principal | | | | inflation (as long as you get the fixed rate mortgage |
| and Appreciation. The appreciation is similar to | | | | instead of the ARM Rate!). If you were renting over |
| gambling in the stock market because they're both | | | | those 15 years your rent would have gone up close to |
| good for long term as history has shown. Buying and | | | | 10% a year and you will have missed out on all that |
| selling for the short term may work, and there may be | | | | appreciation. Now take a look at how much you owe |
| skill involved but you never know what might happen | | | | after those 15 years, $104,000! You already paid down |
| at any given time. | | | | $46,000 in principal and now the principal is much higher |
| Principal is very easy to figure out by using a | | | | in each payment. |
| mortgage calculator that shows an amortization | | | | Everyone has a different situation and they always call |
| schedule. It shows you how much principal and interest | | | | for different avenues. There's no best or worst idea, |
| are in each monthly payment. Notice that the principal | | | | just simply make the best out of what you want or |
| is very low in the beginning because you still owe so | | | | need to do. Also make good use out of the mortgage |
| much money. As you owe less you pay less interest | | | | calculator because it can tell you a lot! |
| which is why it's so important to pay down principal. If | | | | |