GRAND RAPIDS, Mich. (WOTV) — Rent or buy? You may be asking yourself which choice is better and why. Plus, if you decide to rent or purchase a home you may also be wondering what resources are available for you to optimize either decision. To get an idea of the pros and cons of home ownership and to learn more about resources available from the Michigan State Housing Development Authority (MSHDA), check out this Q&A with Nancy Baker, business development specialist from the Michigan State Housing Development Authority.
1. Why should people consider buying instead of renting? What are the benefits? What are the cons?
- Homeowners can build equity/wealth if the value of the home increases.
- With interest rates remaining relatively low, for most Michigan residents, buying a home costs less overall than renting.
- Tax breaks for homeowners.
- With a fixed-rate mortgage housing payments remain stable – rents can increase.
- Freedom to decorate and remodel the home as you please. With a rental unit, you need permission from the owner.
- Homeowners have to pay for maintenance of the home.
- The home is not a liquid asset. If you need to sell because of a life change, you may not be able to sell as quickly as you’d like or get the price you want.
- The home could lose value – there is no guarantee that the home will increase in value over time.
- Property taxes can increase making the home less affordable.
2. What if people have fears about the economy, being laid off, etc.? How could they overcome that?
There is always risk involved with any kind of investment — whether it’s purchasing a home or participating in the stock market. Potential home buyers should consider the stability of their current employment and area economic conditions before deciding to buy.
3. How is buying cheaper than renting?
Rents continue to increase across the county. Home prices are beginning to increase as well; however, mortgage rates remain relatively low, keeping monthly mortgage payments competitive with the rental market.
4. How can a person manage purchasing a house if they have excessive debt like student loans, etc.?
First-time home buyer or home buyers with excessive debt or other issues should meet with a MSHDA approved or HUD approved Housing Education Agency in their area. The agency will provide pre-purchase counseling services that include helping the home buyer set up a budget and determine a workable plan to start paying down debt so they will eventually be able to purchase a home.
To purchase a home, a buyer needs generally acceptable credit. This includes having a manageable debt to income ratio (DTI). The DTI is the percentage of the buyer’s monthly gross income that goes toward paying debts. Depending on what type of mortgage the buyer wants to assume, the DTI for a MSHDA loan should be 41 percent to 43 percent. Anyone with “excessive” debt, should pay down the debt before assuming a mortgage.
5. Is providing help with down payments the only services MSHDA provides?
No, MSHDA provides financial and technical assistance through public and private partnerships to create and preserve safe and decent affordable housing, engages in community economic development activities, develops vibrant cities, towns and villages, and addresses homeless issues.
For homebuyers we also provide homebuyer education, mortgages and Mortgage Credit Certificates (federal homebuyer tax credit).
6. How long has MSHDA been in existence?
MSHDA was established in 1966 and will be marking our 50th year of assisting Michigan residents in 2016.
7. Is the money from MSHDA a loan, a grant, etc.?
Our down payment assistance is a loan that is a 0%-interest second mortgage that must be repaid when the MSHDA financed home is sold (or home ownership interest is transferred through other means), refinanced, or when the original mortgage has been paid off.
Occasionally, we offer grants to first-time homebuyers. For instance, when the National Mortgage Servicer Settlement was awarded, the Michigan legislature assigned some of these monies to MSHDA to offer grants to first-time home buyers. Those funds were recently exhausted.
8. How many people have MSHDA helped in West Michigan? In Michigan?
This can vary greatly from year to year depending on economic conditions and the vagaries of the housing market.
State-wide: From 2008 through 2014, MSHDA provided 9,277 mortgages. Of these, 5,192 took advantage of our down payment assistance.
West Michigan: (Allegan, Kent, Muskegon, Ottawa counties): From 2008 through 2014, MSHDA provided 1,573 mortgages. Of these, 662 took advantage of our down payment assistance.
9. What are other financial considerations people need to think about besides the down payment when purchasing a home?
Home maintenance, property taxes, mortgage insurance and homeowner’s insurance are ongoing costs that homeowners need to be aware of. Also, if purchasing a condominium or a home within certain developments, there may by association fees incurred.
Baker also adds when choosing whether to rent or buy that, “it’s vitally important for homebuyers (particularly first-time purchasers) to become educated. MSHDA has developed a network of counselors across the state that provides home buyer education that not only teaches about the home buying process, but directs a potential home buyer to focus on their own readiness to purchase and the steps necessary to achieve that goal.”
“While many would-be home buyers may look good on paper (i.e., stable employment, acceptable credit), they often lack the cash required to cover the down payment, closing costs and prepaids. For qualified buyers, MSHDA can offer up to $7,500 through our down payment assistance program, to cover these items.”
For more information on the MI First Home and MI Next Home programs, visit ownmihome.org.