Rent vs Buy by Mitten Realty Group

The rent versus buy question has no simple answer. It is a mix of personal choice, personal financial situation, and the housing market at the time the decision is being made. Here are some things to think about when you are deciding to rent or to buy.

Credit:

Rentals properties do review credit. Some properties have a required credit score to get the property. If the potential renter does not meet this credit score, there is an opportunity at times where a co-signer can be used.

To buy a home with a mortgage, credit is one of the largest factors, along with income and assets. The better your credit, the better the rate and payment will be on the mortgage. You will want to review your credit and get advice from a mortgage or credit professional to see what it will take to improve the score.

Rental Cost vs Mortgage Cost:

The amount a renter pays to a landlord usually increases with lease renewals. The landlord has the right to request this increase. The renter will either accept these increases or be forced to move.

Mortgage payments are fixed for the term. Taxes and insurance can fluctuate, but the payment itself stays the same.

Rental Deposit vs Purchase Down Payment:

Rental deposits can be 1.5 times the monthly rent (in Michigan, this is the max allowed). If you are renting a home for $1200, you will need an additional $1800, for a total of $3000 to move in.

Down payment for a $100,000 house can be as low as 3%, with payments averaging $473 (based on todays rates of 3.925). You also need to factor in taxes and insurance, which should still be under the $1200 of the rent payment.

  • There are also many programs available for down payment assistance, which could also help.

Maintenance:

As a renter, the landlord owns the home and should handle the maintenance. Some rental contracts may say that the renter repairs things up for value of $50, but overall, the major repairs and maintenance of the home falls onto the landlord.

As a homeowner, you are responsible for ALL maintenance. If you need help fixing something, you will need to call professionals, or buy some pizza and beer and bring over some handy friends and family.

Mortgage Payment and Equity:

When you rent a home, you are basically paying the landlords mortgage payment, taxes, insurance, and profit. You are building up their equity in the home with each payment.

When you buy a home, each payment you make is for YOUR MORTGAGE payment. The equity that is being built up is yours. This equity can be used if needed or received when the home is sold.

Flexibility vs Stability:

For renters, the ability to move at the end of the lease is easy. You find a new place and go from one place to another. It is easy to be able to exchange where you live if you follow the rules in the lease. Some renters do not plan to stay in any place long term.

For homeowners, the purchase is more about stability, more than flexibility. They are looking for a place for long term. When a homeowner wants to move, there is usually more to do than finding the next place to go. You must prepare the home for sale, place the home for sale, close the sale and then move on. Situations will vary, but as a homeowner, you do not plan on doing this as often as you would if a renter.

Creative Control:

Renters typically do not have the creative control to make changes to the place they are renting. The lease will stipulate any changes must be approved by the landlord and returned to original condition before moving out. This means there are additional costs for the renter.

Homeowners have complete control of what they do with the place they own. They can paint the walls, design the place inside and out how they want (some areas are controlled by homeowners’ associations), and make the place the home they have wanted.

Housing Market:

When the housing market is a sellers’ market, and pricing is higher than normal, people may choose to rent and wait until the pricing adjusts to make it more desirable to purchase.

When the housing market is a buyers’ market, people may look to purchase while the pricing is lower, to make the building of equity easier.

Both renting and buying have their advantages and disadvantages. Therefore, I say it is a mix of personal choice, personal financial situation, and the housing market. Each play a pivotal role in the decision-making process.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success, and failures to help buyers, sellers, Realtors, brokers, and anyone else in the real estate and business, so that together we can grow as a community.

Should I get a home inspection before purchasing by Mitten Realty Group

Have you ever seen something online, thought the product looked amazing, clicked on the purchase button, to find out when it arrives, it is nothing like you thought? You then realize there is a “NO RETURN POLICY” and the buyers remorse sets in. Your money at this point is gone. This can be the same when you purchase a home. The online pictures are beautiful, the seller disclosures are perfect, the walk through looked amazing, and the decision to write the offer begins.

As part of this offer, the decision will be made whether to have the home inspected. This is a huge decision for both first time buyers and final home buyers. The home is usually the largest financial investment one will make in their life. As a real estate professional, I encourage all my clients to get the home professionally inspected to secure this investment. The inspection seems like common sense, but it is not.

Some buyers have friends and family that have purchased homes and are “AMAETUR INSPECTORS” or contractors. They claim to be able to review the home and help make a good decision based on their own experiences. The problem here is they are not professionals. If something is missed and found later, who do you go to? Do you go to family and friends and say “THIS IS YOUR RESPONSIBILITY” …. Ahhh that will not be good for family and friend get togethers later.

Other reasons people choose to not get the home inspected is the cost. A typical home inspection ranges between $300 to $600 (more if the home is larger, has a well and septic, pool, or other specialty amenity that needs to be inspected). To the potential buyer they saved money on the purchase of a home that can be used for closing. The problem arises when they move into the home and the first night, no heat, or no air conditioning. This problem could cost the new owner thousands of dollars to fix. An inspector would check these items and then report back and allow for the buyer to back out of the deal or have their Realtor negotiate credit or lower purchase price.

By using a professional and well-respected home inspection company (make sure they are reputable), you will have someone looking out for your best interests. The inspector does not care if the deal goes forward or falls apart, they are about the condition of the home and everything inside and outside. These home inspection professionals will look at all the mechanical systems (heat, air, electrical, and plumbing), the foundation, the roof, the attic, the crawl spaces, windows, the siding or brick, sidewalks, patios, porches, driveway, and much more. They even look for things like mold.

Once the inspector is done looking at the home, they will walk the potential buyer and their Realtor through the home and point out things good and bad. They will then write up a report on each area of the home. This digital report (or paper, which is rare), will be reviewed by the potential buyer and their Realtor to see if there is anything that should be addressed and whether to move on with the deal or walk away. This is the point where a Realtor can negotiate credits or reduction of purchase price as well.

Homes that have been lived in will have wear and tear. You can negotiate for just about anything from the inspection, but the focus is more on the high-priced items, the mechanicals, the roof, and foundation. Your Realtor should be able to guide you as to what they feel would be good to negotiate with after the inspection. Realtors have been through these deals many times and based on what is in the reports, will suggest what they can do in terms of negotiation. You will at times need to get quotes as a back up to requesting credits or reduction of purchase price. If quotes are needed, make sure your “INSPECTION PERIOD” is not close to expiring. If you need to, have Realtor extend your inspection period for enough time to get all the quotes needed.

In the end, an inspector is your eyes into the home. They have the tools and the experience to let you know the quality of the home in which you are wanting to buy. Even new construction homes should be inspected. A home has many moving pieces and hidden places. You want to make sure everything is as you expect it, to enjoy the excitement of the home you are purchasing.

Ask your Realtor for home inspector referrals. They have people they see on a regular basis who are good and know who not to use. This is a good start, along with the internet to find the right company to work with.

GET YOUR HOME INSPECTED!!! A Few hundred dollars is always better than a few thousand in repairs later!!!

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.

What is an Earnest Money Deposit by Mitten Realty Group

Earnest money (EMD) is a deposit made to a seller that represents a buyer’s good faith to buy a home. The money gives the buyer extra time to get financing and conduct the title search, property appraisal, and inspections before closing. In many ways, earnest money can be considered a deposit on a home, an escrow deposit, or good faith money.

The EMD will be placed with a broker, a title company, or a lawyer to hold while the real estate transaction is processing. Who will hold the EMD will vary, depending on the instructions for sale or the negotiated place between buyer and the seller. The EMD is a way to ensure that the buyer is serious about the purchase of a property and not “SHOPPING AROUND” while taking properties off the market. The EMD will be credited on the closing statements.

The buyer’s agent should make sure that there are contingencies in the purchase agreement, so the buyer will get their EMD back under certain scenarios. Some of the scenarios include:

  • Bad inspection
    • At times, the seller will negotiate or work out the issues with the inspection, but when both sides cannot agree, the EMD can be released back to buyer and deal mutually released.
  • Property does not appraise
    • Markets change and properties may not appraise for the agreed upon price. Like the inspection, if both sides cannot come to terms, the EMD is released back to buyer and deal mutually released.
  • Misrepresentation by the seller
    • The property should have a seller disclosure. This is 100% completed by the seller. If there is something that is misrepresented, on purpose or by accident, the parties can find a way to fix the situation or mutually release property and EMD returned to the buyer.
  • Mortgage cannot be approved
    • Approvals are not guaranteeing that the deal will close. There are many other factors that come into play after the purchase agreement is signed and the deal processes. If the lender ends up stating the buyer cannot continue, the EMD is returned and property mutually released.

The amount of the EMD is up to the buyer. Normal EMD amounts are around 1% or 2%, but in particularly good markets, the EMD can be as high as 5% to 10%.

Sellers look at the EMD as part of the strength of the offer. For example, if someone offers $500 EMD on a $500,000 home, the seller will feel as though the buyer is not serious. The seller may also feel it is not an amount worth taking the house off the market for. If a small EMD is part of the purchase agreement, you will want to investigate further with the mortgage lender and if cash deal, proof of funds.

When there are multiple offers, every detail is important, including the amount of EMD placed to secure the property. You want to make the listing agent and seller see your deal as the best opportunity to get to the closing table.

In the case where the EMD is being disputed, you will need to review the purchase agreement to decide how to proceed – some purchase agreements have built in mediation or arbitration clauses. You can contact the other broker, use the local real estate board, or in extreme situations, you may need to use an attorney to get the EMD released. Both the buyer and the seller can try to claim the EMD. Therefore, having contingencies in the purchase agreement and everything in writing as the real estate deal progresses. Besides everything in writing, you will want to make sure all parties sign any changes or addendums.

Here are some situations where the seller has the right to request the EMD be provided to them:

  • Buyer gets cold feet and wants out:
    • Just because the buyer gets cold feet or decides the home is not what they wanted; does not mean they get their EMD back. The seller has taken the home off the market and accepted the EMD as good faith that the buyer wanted the home.
    • Both the buyer and seller will need to review the PA for deadlines agreed upon. If the buyer fails to perform, the seller is entitled to the PA.
  • Buyer cannot perform or close by a specific date:
    • If the buyer cannot perform by the contract date, the seller can request the EMD be sent them.
  • Buyer did not provide accurate information:
    • When the buyer provides documentation to the lender, and it is later found out to be untruthful and the mortgage declined, this is not the same as being denied the loan.

These are just a handful of reasons as to why a seller may have rights to the EMD. Both the buyers Realtor and Listing Realtor should have protections in place for their client.

In the case where the EMD is being disputed, you will need to review the purchase agreement to decide how to proceed – some purchase agreements have built in mediation or arbitration clauses. You can contact the other broker, use the local real estate board, or in extreme situations, you may need to use an attorney to get the EMD released. Both the buyer and the seller can try to claim the EMD. Therefore, having contingencies in the purchase agreement and everything in writing as the real estate deal progresses. Besides everything in writing, you will want to make sure all parties sign any changes or addendums.

Writing up a purchase agreement has more than a price to offer a seller. Realtors are professionals at making sure your offer is written to secure your interests and protect you. Listen to the Realtors advice when they are working on your deal. They do this every day. Although, the Realtor does work for you, and in the end will submit the offer how you feel comfortable, they are the best resource for making deals happen.

If you have any questions about real estate or would like to buy or sell a home, Investment property, or commercial property in Michigan, please e-mail us at info@mittenrealtygroup.com or call 248-294-7850.

Thank you,

Scott Fader and Gary Brincat
Mitten Realty Group, LLC

Mitten Realty Group is a veteran owned company located in Michigan. Scott Fader and Gary Brincat are two of Michigan’s multi-million-dollar top producers. They have been working in real estate as brokers, Realtors, investors, property managers and real estate company owners for over 20 years. Together they would like to share their experiences, knowledge, success and failures to help buyers, sellers, Realtors, brokers and anyone else in the real estate and business, so that together we can grow as a community.