WHAT COULD YOUR RENT BUY YOU?

The majority of homeowners generally take out a mortgage to buy a home, and pay it back over 30 years at a fixed interest rate. While mortgage generally offers a fixed interest rate, renters in Los Angeles can be faced with an increase in rent as much as 3% a year.

CONVENTIONAL LOAN

The chart below compares a renter who pays rent at $2,000 a month with an increase of 3% every 12 months, and a homebuyer who makes a monthly mortgage payment on a $500,000 conventional 30-year Fixed-Rate loan at 3.75% with $5,625 closing cost and $100,000 down payment. The annual percentage rate (APR) is 3.845%.

Annual Payment = Annual Mortgage

Federal Tax Savings = The money homeowners can claim in their tax return in order to get a tax break

Estimated Value = The increase in value of the home

Loan Balance = The money owed to bank

Equity = The amount gained in the value of the home

FHA

Figure 2 compares a renter who starts paying rent at $2,000 a month with an increase of 3% rates every 12 months and a home buyer who makes a payment on a $500,000 FHA 30-year Fixed-Rate loan at 4.0% with $3,552 closing cost and $17,500 down payment. The annual percentage rate (APR) is 5.160%.

Annual Payment = Annual Mortgage

Federal Tax Savings = The money homeowners can claim in their tax return in order to get a tax break

Estimated Value = The increase in value of the home

Loan Balance = The money owed to bank

Equity = The amount gained in the value of the home

What is FHA?

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). It was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable for people with fair credit or a low down payment. The requirements of FHA are less strict than conventional loans. According to Zillow, borrowers can qualify for an FHA loan with a down payment as little as 3.5% and a minimum of 580 credit score. The borrower’s credit score can be between 500 – 579 if a 10% down payment is made. However, the lower the credit score, the higher the interest borrowers will receive.

As of 2016, Lending Limits for FHA Loans in Los Angeles County for single-family home is $625,500. For more information, visit http://www.fha.com/

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