We’ve been talking a lot on Ask Imma about renting vs. buying, about rent vs. mortgage, and all the differences between them. So, when something came into my inbox these days it sort of popped my attention, as it was exactly in line with what we have been talking about, only it was using a lot of acronyms. People aren’t really aware of these acronyms unless they’re in the business or have already been through the process. In this post I’ll explain one important acronym that stands for a difference between buying and renting, so you can see that there’s nothing to be afraid of.
P.I.T.I.
Well, basically, the difference between rent vs. mortgage is a P.I.T.I. That stands for principal, interest, taxes, and insurance, which are all clumped into your mortgage payment most of the time. Unfortunately, that can easily scare someone, as it can shed a negative light on going from renting to buying, and I don’t want that to happen, as there’s no need for it. I wanted to jump in because a lot of people are receiving these solicitations in their inboxes, they’re reading them, and it’s making them a bit more afraid to contact a high-quality moving company such as tiktokmoving.com and move forward with their home-buying process.
When you’re renting, the only security you have is that you can bounce around – if you can call that security. There really is no other security in renting, so it’s like putting your money in a fire pit. But, when you purchase a home and you decide to make that transition into homeownership, the home will be yours. It’s yours and, yes, that’s a commitment, for the next 30 years you and the bank are basically going to be married. However, buying a home means that you’ll be paying yourself, you will be going toward keeping that roof over your head.
Instead of wood imagine your money was in this fire, and you’ll get a good idea on who is the winner in the battle of rent vs. mortgage.
At any given time, the landlord can decide to sell that property and vacate it. On the other hand, the only person who is going to vacate you will be you, by not paying your mortgage on time. The bank will then, in essence, foreclose on a home as a byproduct of your failure to pay.
What do these terms mean?
But, there are so many advantages to buying vs. renting a home that I think it’s really important to not get caught up in the acronyms that you’re not familiar with. A lot of people get afraid, especially when it’s an acronym called a P.I.T.I. Well, it’s surely not a pity to own a home. Buying your first home certainly doesn’t have to be scary! However, principal, interest, taxes, and insurance are a part of the mortgage, so let’s talk about these terms to see what they mean.
Principal and interest payment
Let’s begin with P. in P.I.T.I. Principal payment is basically the amount of money you’ve borrowed from the lender, that you’ll eventually need to pay back. On the other hand, the interest payment is what makes it profitable for the lender to lend you the money; it’s the amount that the lender will earn from your deal.
Insurance
Think of insurance as a sort of investment. Alt text: Three increasingly larger stacks of coins, and a wooden house next to them.
However, principal and interest payments are not the only things that go into your monthly payments. There are also homeowners insurance and taxes that are kept by your mortgage company in an escrow account. A lot of lenders will require that you use an escrow account, as they want to be sure that you’ll be paying your insurance money and taxes regularly. This also makes it easier for you to stay on track of all the payments. Instead of paying a large bill once or twice every year, you’ll be paying much smaller monthly payments, making it easier to plan your budget while making sure that you can afford your beautiful home at any given time.
The homeowner’s insurance includes hazard insurance and personal liability insurance. This covers the home itself and its contents. While this is a fee that renters don’t have to pay; accidents, unfortunately, do happen. So being protected can be very useful. In fact, having homeowner’s insurance is really just another advantage in the rent vs. mortgage dilemma. If you’re renting and your belongings get stolen or damaged, buying new things can easily drain you of money. However, with homeowner’s insurance, you can rest assured that you’re protected and that you can stand on your own feet even in such unfortunate circumstances.
Always do the math.
Taxes
Another advantage of buying a home is that your taxes can actually be reduced! There are several ways to get tax benefits after buying, but I’ll explain a few of the most important ones. For starters, you can get huge deductions at any time your mortgage doesn’t exceed 750,000 dollars. These deductions go toward reducing the interest you’re paying back the lender, making the P.I.T.I. acronym seem even less scary.
Calculate some of the many tax deductions you’ll get if you’re buying a home. Alt text: Once you use a calculator and a tax form, like the ones on this picture, to calculate your tax deductions, you’ll see that rent vs. mortgage is in fact no dilemma at all.
You can also deduct as much as 10,000 dollars in property taxes. If you’re paying via escrow account, look at the IRS Form 1098 that the lender will sent to you to see how much can you deduce. If you’re not paying through an escrow account, you’ll need to have a record of the amount you’ve paid. There are also benefits if you make energy-efficient adjustments to your home, if you decide to age in that home, if you work at home, and so on.
Final thoughts
So, as you can see, there’s nothing pitiable about buying a home (on the contrary). The acronym is called P.I.T.I. simply because these are some key components to buying a home, and the acronym makes it easier for people to remember them, and it also speeds up the conversation. I didn’t want to go to much into detail on rent vs. mortgage in this post, just to demystify this scary-sounding acronym. If you’re seriously considering buying, call me today. My number is 347 457 63 64, and I’m looking forward to helping you find your way home! Also, check out my AskImma Youtube Channel, where I regularly post helpful, informative videos for some additional assistance.
Contributing writer: Betty White
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