With all the volatility and controversy surrounding the housing and mortgage markets this seems like the perfect chance for a mortgage banker like me to clear the air and answer the question: why rent when you can buy?

The first issue to tackle would be the recently developed view that all mortgage lenders are shady characters. The sad truth of the matter is that there are plenty of bad lenders out there looking to capitalize on uninformed individuals but there are also great lenders too. Some questions to keep in mind are as follows:

•Is the company a mortgage broker, mortgage banker or a bank?
•How much of the lending process do they handle in-house?
•How do they determine your rates?

Another important aspect to keep in mind when considering a lender is that there has been a major shakedown and the industry is now cut in half. The surviving companies consist mostly of companies that stayed out of the sub-prime lending game. The sub-prime lending game is dead and that’s important to consider as you approach the question of whether to rent or buy.

Rent or own? Many young adults rent because they believe they can’t afford a mortgage payment. It is very important for a potential borrower to have a steady income and good credit scores to qualify for a loan, but one idea that is extremely under minded is the idea of loan structure with seller paid points.

Seller paid points may seem rather abstract at first, but the idea is actually pretty simple. When looking to buy a property, buyers may ask the seller to pay “points” (1 point = 1% of the loan amount). These points can be used by the buyer to pay off mortgage insurance or even better, can be used to buy down your interest rate.

Still confused? Here is an example: Say you find a property that you like and you think its worth $300,000. You would make an offer to the seller for $309,000 (that extra $9,000 is equal to 3 points – 3% of the potential loan amount) of which you would ask the seller to pay 3 points towards closing costs and rate reduction.

Those points can be used for a number of things:
•First, they can be used to pay any closing costs.
•If a borrower doesn’t have the money to put 20% down upfront, they will have what is called mortgage insurance which adds on to your monthly payment. With points, you would be able to pay that mortgage insurance off up front, reducing your monthly payments.
•Lastly, you would be able to buy down your interest rate with seller paid points.

Of course this is an over-simplified explanation of how things work and I don’t advise any person to move forward without consulting a mortgage professional. I am willing to answer any questions with no strings attached. Please email me at jdulla@uhloans or call me at 708-531-8322 regardless of what state you live in.