Home Loan Considerations for Short-Term Residents

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Although homeowning is generally a profitable venture, there are plenty of home loan considerations for short-term buyers to factor in.

The Benefits
It generally takes staying in a home at least three to five years to make the purchase worthwhile. If you plan to own a home for at least this long, the most profitable benefit is the ability to gain equity in your home, rather than giving your money away to a landlord. When you go to sell, you may actually make a chunk of change to put toward your next home purchase. With renting, all of the rent money paid is gone forever.
You may also be able to benefit from mortgage tax deductions even if you stay in your home just a few years. Mortgage interest is all tax deductible. The only caveat is that you have to make enough money to itemize your deductions instead of taking the standard deduction.

What to Consider
Before you jump right into homeownership for the short-term, there are several financial costs you need to consider. These include:
  • Closing Costs – Are you prepared to pay 3  to 6 percent of the home’s purchase price upfront? That amount of money may seriously deflate the savings over renting for a few years.
  • Property Taxes – These costs vary widely by state and city, so be sure that you can afford to keep up with the property taxes in your area before you buy.
  • Down Payment – Buying a home requires a down payment, usually at least 3.5 percent of the purchase price. Can you afford to part with a large sum of cash now, or would you be better off saving for a few years and investing that money for a larger down payment down the road?
  • Private Mortgage Insurance – PMI is required when you put less than 20 percent down on a home purchase. This premium could cost you an extra 1 percent of your loan total every year.
  • Maintenance Fees – Owning your own home means paying for your own repairs and buying your own appliances. These costs need to be figured into your budget, as well.
  • Reselling costs – After your few years are up, be prepared to give away some of the profits from your home sale for real estate agent fees.
  • Home Appreciation Rate – In a “normal” market, you can expect your property to appreciate slightly more than the rate of inflation, but in a down market the value may grow much slower or even depreciate, making it much harder to realize a profit when you resell the house.
If you are still able to save some money after factoring in all these extra costs, then buying for the short-term is probably in your best interest.