Tool: Buying Or Renting A Home?

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GET TING STARTEDBuying or renting a homeThis tool will help you think about whether to rent or buy ahome when faced with a Permanent Change of Station andwhere living on base may not be an option.The decision to rent or buy a home is among the most challenging and important. It isa personal decision and often related to a servicemember’s values and goals.Many factors affect a servicemember’s ability afford buying a home, like income,credit history, and debt. These include income, credit history, and debt. There arelifestyle and emotional factors to consider too, like the stress of affording mortgagepayments and maintenance, or selling the home if needed. But it also providesfreedom to that aren't allowed when you're renting.What to do Read through the prompts below. Think about your goals, values, and the lifestyleyou want as you read. Review the additional information for each prompt. This may give you moreinformation to help you answer the question. Answer each prompt. If you have a spouse and/or other family member(s) movingwith you, consider answering the questions with them.A step furtherUse this as the foundation for a productive conversation.To access a dynamic and fillable version of this tool, visit consumerfinance .gov/yourmoney-your-goals/companion-guides.1

Deciding on Buying or rentinga home1. Read each prompt and the additionalinformation to determine an answer.3. Select either "yes" or "no" for each prompt.2. Put a check or “x” in the column that bestrepresents your answer right now for eachconsideration.What to considerAdditional Information1.If you are buying a home with a loan,you will have a monthly mortgageDo you have enough regularincome to cover the monthlypayment?YesNopayment. It will likely include the partialrepayment of the loan, the interestyou owe, taxes, and home insurance. Ifyour interest rate is fixed, your monthlypayment will only fluctuate based onchanges to taxes or insurance.Rent, however, can increase. Prior noticeis required, but the amount of timerequired for this notice varies by stateand local laws.2

What to considerAdditional Information2.You will need additional income to coverutilities and other ongoing costs if youown a home.Do you have enough incomeand savings to afford theutilities, maintenance,repairs, and other ongoingcosts associated withhomeownership?YesNoIf your renting may be included inyour rent, such as gas and electric.But water, sewer, garbage/recycling,internet, television, or phone service aregenerally not included.As a renter, you also won't pay for mostregular maintenance and repair costs.Read your lease or rental agreement toensure you understand what is and isnot covered in your monthly payment.3.Can you afford a mortgagewith the other debt youhave?The more debt you have, the less moneyyou have to cover housing costs whetheryou are renting or buying.When buying a home, some lenders setlimits on how much debt you can haveto qualify for the loan. With VA loans,there is no maximum debt-to-income(DTI) ratio but borrowers with a high DTIratio may have trouble getting approvedfor a VA loan.4.Do you have a good credithistory?Your credit scores and the informationin your credit reports may affect yourability to rent or buy. For renters, lowercredit scores may mean higher securitydeposits or rejected applications. Whenbuying a home, lower credit scores canreduce your options for financing yourhome purchase. With VA loans there isno minimum credit score required—thelender must consider the entire loanprofile.3

What to considerAdditional Information5.For a conventional loan, you mustgenerally pay 20% of the loan as adown payment or you pay for mortgageinsurance. This increases your monthlypayment.Do you have money for adown payment and closingcosts?YesNoWith a VA loan, no down payment isrequired unless it’s required by thelender and mortgage insurance isn’trequired. Closing costs are generallypaid at closing but may be rolled intothe loan. Experts estimate buyers paytwo to five percent of the purchaseprice, but the actual percentage variesdepending on where the home islocated.6.Will you benefit from ahome mortgage interestdeduction?You may be able to deduct all or mostof the interest you pay for a mortgagefrom your taxes. This reduces yourtaxable income. To use the homemortgage interest deduction, you mustlist or itemize your deduction. Itemizingtax deductions may not be worth itfor all families. Look at whether yourtotal itemized deductions, includingyour mortgage interest deduction, aregreater than the standard deductionyou're entitled to.7.Is the local housing marketstable?This affects your ability to sell a home ifyou have a Permanent Change of Station(PCS) or move for another reason. Askreal estate professionals, lenders, andappraisers questions to understandyour local housing market. Do homesseem to sell relatively quickly? Are therefew foreclosures? Are home pricesincreasing at a reasonable rate? Theseare typically signs of a stable housingmarket.4

What to considerAdditional Information8.Is the military installationunlikely to close?The Department of Defense BaseRealignment and Closure (BRAC)Commission may be looking to closeyour installation, which could resultin changes that affect the housingmarket. If you buy a home, and the localeconomy is dependent on a militaryinstallation that closes, it may affect yourability to sell or rent a home.9.Do you think you will returnto or potentially retire in thearea?Generally, the longer you stay in ahome, the more your equity will grow.Home equity is the value of your homeminus any loans you owe on your home.Once you build home equity, you maybe able to borrow against it to pay forother needs like home improvements oreducation.YesNoYou do not build equity when you rent.10. Do you need housing withaccommodations for seen/unseen injuries?When you own a home, you have morefreedom to remodel or adapt a home.The VA has a specially adapted-housingprogram, which offers grants to helpservicemembers and veterans withcertain service-connected disabilitiesbuild, remodel, or purchase an adaptedhome.If you rent, the Fair Housing Act, whichcovers most housing, requires landlordsto provide reasonable accommodationsfor individuals with disabilities. This includes service and emotional supportanimals. You can't be discriminatedagainst or evicted if you have a serviceanimal.5

What to considerAdditional InformationYes11. Would renting a homeimpair your ability to pursuehobbies like gardening orpainting?When you own a home, you have thefreedom to pursue a wide range ofhobbies, and you can redecorate andrenovate within any limits set by locallaws or a Home Owners Association(HOA) if applicable.NoSome landlords may allow gardeningand redecorating, but this will vary.12. Do you have pets?When you own a home, you cangenerally have the pets you want withinthe limits of state or local laws. Somerentals allow pets, but the type andnumber are generally limited, and anadditional financial deposit is oftenrequired.13. Are you comfortablebecoming a long-distancelandlord if you are unableto sell the home following aPCS or other move?If you are unable to sell your home, youmay have to rent it out in order to coverthe costs of ownership. Being a longdistance landlord presents a host ofchallenges–especially finding tenantsthat will care for your home as youwould.As a renter, you may experience financialpenalties for moving if you vacate therental before the term of the lease orcause any damage to the property. But,generally, leaving a rental is easier thanselling a house.If you have more “yes” than “no” responses, you may beready to explore buying a home rather than renting. If youhave more “no” responses, you may need to do a littlemore research before deciding, or renting may be the bestchoice for you right now.Total ResponsesFor more information on buying a home, visit:consumerfinance.gov/owning-a-home.For more information about the home buying processusing a VA loan, visit: ocess/.6

DISCL AIMERThe Consumer Financial Protection Bureau prepared the tools included in the YourMoney, Your Goals: Focus on Military Communities companion guide as a resourcefor the public. This material is provided for educational and information purposesonly. It is not a replacement for the guidance or advice of an accountant, certifiedfinancial advisor, or otherwise qualified professional. The CFPB is not responsible forthe advice or actions of the individuals or entities from which you received the CFPBeducational materials. The CFPB’s educational efforts are limited to the materials thatCFPB has prepared.The tools may ask you to provide sensitive information. The CFPB does not collectthis information and is not responsible for how your information may be used if youprovide it to others. The CFPB recommends that you do not include names, accountnumbers, or other sensitive information and that users follow their organization’spolicies regarding personal information.This guide includes links or references to third-party resources or content thatconsumers may find helpful. The Bureau does not control or guarantee the accuracyof this outside information. The inclusion of links or references to third-party sitesdoes not necessarily reflect the Bureau’s endorsement of the third-party, the viewsexpressed on the outside site, or products or services offered on the outside site. TheBureau has not vetted these third-parties, their content, or any products or servicesthey may offer. There may be other possible entities or resources that are not listedthat may also serve your needs.7

Buying or renting a home This tool will help you think about whether to rent or buy a home when faced with a Permanent Change of Station and where living on base may not be an option. The decision to rent or buy a home is among the most challenging and important. It is a personal decision

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