Buy or Rent?
Whether or not to buy a home is a huge personal and financial decision. There are benefits and challenges to both. Here are some things to consider.
Length of Ownership
If you plan to live in your home for at least five years, buying may be a good option for you. In that timeframe, you can generally recoup the purchase and upstart costs of your new home, and build some equity.
Monthly Cost Comparison
In general, you should expect your monthly expenditures for your mortgage and related costs to be somewhat higher than rental payments, but keep in mind that you’re also building equity while you live there. Be sure to compare the cost of ownership to renting, and don’t forget the “extra” costs of ownership, such as property taxes, mortgage loan interest, home repairs and upkeep, lawn maintenance or association fees and more. If you anticipate a monthly debt load approaching 40% of your gross income, including your mortgage, you are probably not financially prepared to buy a home.
Down Payments, Deposits & Drapes…Oh My!
When you buy a home, you’ll have to put down a percentage of the purchase price as a down payment on the home. When you rent, you’ll have to make a security deposit to the landlord, which is typically equal to one-month’s rent. Do you have it?
After those costs are satisfied, you’ll also want to ensure some money remains for start-up costs like connecting utilities and buying some cute drapes for the living room. A home just isn’t a home without a few accessories…and electricity.
Buying Your Home
So you’ve decided to buy a home. Congratulations! In addition to finding the right home for your lifestyle, taste and budget, there are a few financial terms (we know… “Boring!” …but necessary), as well as some personal preferences to keep in mind.
What to Expect With a Mortgage Loan
Many people enter in to a mortgage loan without understanding all of the costs associated with buying a home outside of the actual mortgage loan. Midland Credit Union has created a Home Buyer’s Video that walks you through everything you need to know to buy a home. In addition, our Home Buyer’s Worksheet provides a definition of many terms you’ll hear during the buying process. We want you to be fully-informed before you enter in to any mortgage agreement, but know that we would be proud to give you your first Mortgage Loan. Please talk with one of our Mortgage Loan Professionals!
Think with your head, not your heart.
Looking at homes can be a very emotional process! It’s easy to fall in love with a beautiful outdoor space or fancy bathroom, and overlook some of the important features the rest of the is missing. Be sure to create and take a list of ‘must haves’ as well as a list of things that would be nice if they were available. Check them off as you tour the home.
Think about today…and tomorrow.
Obviously you’ll need to consider the physical layout and soundness of the structure and the property itself, but also consider things like the location and the neighborhood. Make sure to investigate whether municipal or regional authorities are planning changes to civic code, zoning or by-laws that may affect the value or nature of the property in the future.
Find a trusted realtor.
A trusted realtor can be very valuable in keeping your sights on what you really want/need in a home, and inform you of some of the future plans for the neighborhoods you’re touring. They will also assist with the negotiation once you’re ready to buy, take care of all the details, and ensure you’re well-protected during the transaction. Ask your lender for a referral to work with someone you can trust.
Refinancing Your Mortgage
There are several situations when it makes sense to refinance your mortgage loan…and a few times it does not. The professional lenders at Midland Credit Union are always happy to help you weigh the pros and cons of your mortgage refinance. You can also use our free Mortgage Refinance Calculator to do some preliminary calculations yourself.
Securing a Lower Interest Rate
One of the best reasons to refinance is to lower the interest rate on your existing loan. Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough of an incentive to refinance.
Reducing your interest rate not only helps you save money, but it enables you to pay more toward the equity in your home, and may even reduce your monthly payment.
Shortening the Loan’s Term
If Mortgage Loan rates are lower than what you currently have, but you’re pretty comfortable with your current payment, a refinance may help you shorter the term of your loan. Not only will this help you pay off your loan sooner (and be mortgage-free!), but you’ll save hundreds – maybe thousands – of dollars in interest payments!
Converting Between Adjustable-Rate and Fixed-Rate Mortgages
While ARMs start out offering lower rates than fixed-rate mortgages, periodic adjustments often result in rate increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to a fixed-rate mortgage results in a lower interest rate as well as eliminates concern over future interest rate hikes.
Buying a Car
Buying a vehicle is one of the top five most stressful things to do in life, but for many people, it’s not just about getting from “point A” to “point B.” For some, their vehicle reflects their personality, but it’s important to balance your taste with your budget. After all, it’s no good to have a sweet ride if you can’t afford to go out!
Determine Your Budget Before You Shop
Even before you hit the Internet or the car lots, you should do some research on the types of vehicles you like. Determine how much you can afford each month before you shop – let your budget determine your vehicle options, not the other way around. Remember that tax, title and license fees will be added on top of the price of the vehicle when you buy. If you want to get an idea of your loan payment, use our free Loan Payment Calculator.
Once you’ve narrowed down your selection to a few vehicles, contact your insurance agent to find out what the rates will be for each vehicle. Insurance costs can vary drastically based on safety ratings and other factors. You may also wish to contact multiple agents to see who has the best rate. Also, if you’re a homeowner, bundling your home and auto will likely save you money.
Finally, keep in mind the annual registration fees, fuel costs and maintenance, all of which should be calculated in to your monthly budget.
New or Used
While it may be amazing to drive a brand new vehicle off the lot, there are some things to consider before doing so. Unfortunately, buying new or used is not a one-size-fits-all answer—a lot of it depends on your particular situation.
The first thing to be aware of is depreciation. On average, a new car loses between 20 and 30 percent of its value the moment it rolls off the dealer’s lot. (Yah, we know, that stinks!) So, buying used will help you avoid instant depreciation.
Another point to consider is, do you have a down payment? If you have a good credit score, but no down payment, it may actually be easier for you to find financing for a new vehicle. You may even be able to find a new car with a large enough manufacturer incentive to cover a down-payment. When buying used, you may be required to have a down payment for financing.
Lease or Finance
Just like the question of buying new vs. used, the question of buying vs. leasing has a lot to do with your financial situation and lifestyle. The advantage of leasing is that you will be driving a new car while making relatively low monthly payments. The disadvantage is that you may never own that car and there are many restrictions and penalties that come with a lease that you may find unacceptable for your driving style. Read the lease agreement carefully before you commit to anything.
Vehicle Protection Plans
In addition to owning a vehicle, there are a variety of protection plans available to give you added peace of mind and future security. All of these protection plans can be provided to you by Midland Credit Union. Call or stop in to talk with us about any questions, or to determine which types of coverage are right for your situation.
Guaranteed Asset Protection (GAP) – Covers the deficiency balance on your loan in the event of a total loss. This is particularly advantageous when buying a new vehicle.
Mechanical Breakdown – Provides protection against mechanical breakdowns above and beyond the original manufacturer’s warranty.
Debt Protection– Pays your credit balances if you die, suffer a serious illness or injury or lose your job. Talk to a loan officer for additional information.