WRITTEN BY JAYMI NACIRI
Still renting? You must have a good reason. Although, we’re not really sure what it is. With rents continuing to rise across the country, interest rates staying around historic levels, and new loans lowering down payment requirements, it just makes sense to take the leap to homeownership. Maybe you’ve got terrible credit and don’t want to take the time to improve it (or don’t know about loans that accept lower scores)? Or, maybe you just like giving your money away. If you’re still not on board, these 7 reasons might change your mind.
Because owning a home is still less expensive than renting across the country
GOBankingRates‘ annual survey of “the cost of renting versus owning a home in all 50 states and the District of Columbia” just came out, and, while they “found that the number of places where it’s more expensive to own than rent has increased,” the number went from 9 to 11. That means that, in 39 states, it still makes more financial sense to buy.
Rates are near historic lows
We’re spoiled. Seriously. Anyone who has been paying attention to the market over the last few years and has seen interest rates with a 3 or 4 before that decimal point may just think it’ll always be that way. But history has a way of repeating itself, and while we may not see rates in the teens again anytime soon, most industry experts have been predicting rates moving into the 5s sometime this year, with a pattern of rising rates beyond. Buying a home while money is cheap is a smart move.
“A difference of even 1 percent can have a major impact on your total payments over time,” said ZACKS. “For instance, a $200,000 mortgage for 30 years at an interest rate of 5 percent would require a monthly payment of $1,073.64. By comparison, the same mortgage at 4 percent interest would result in a payment of $954.83.” That might not seem like a big deal every month, but, consider the long-term potential: “Over 30 years, the total difference between the two would be $42,771.60.”
FHA loans and the like make it easier to qualify
Don’t have an 800 credit score? You don’t need to today. FHA requirements are lower than conventional loans, and you may already be where you need to be to qualify. “The average FICO score for buyers who finance FHA loans is 683, according to Ellie Mae. That’s considerably lower than the average score of 753 for conventional, non-FHA financing,” said Interest.com. “Most lenders have a…minimum of 600.”
A little thing called equity
Rising rents may or may not equate to rising property values in your area, but either way, you’re not going see any financial benefit from it. When you own your home and your equity rises, that equity is yours. And so is the choice of what to do with it. Whether you decide to let it sit and continue to grow or tap your equity for home improvement projects, the money is yours to decide how to use.
Does 20 percent down make it more likely that you’ll qualify for a loan? Sure. Does that mean you have to come up with that huge chunk of money? No. Nor do you have to come up with 10 percent down, which, for some reason, the majority of new buyers seem to believe. “87% of first-time buyers think they need 10% or more down to buy a home,” said The Mortgage Reports.
The FHA loan is one of the most popular loans available to first-time buyers because, not only can you qualify with a fair credit score, but the down payment is as low as 3.5 percent, and, “100 percent of the down payment can be a financial gift from a relative or approved non-profit,” they said. But, it’s not the only option for a low down payment. Fannie Mae’s Conventional 97 Mortgage and HomeReady Mortgage require just 3 percent down. The Mortgage Reports also has information on closing cost help and down payment assistance programs.
Rents keep rising
Unless you’re in a rent-controlled apartment (and, bless you if you are since there are so few left), your rent is just going to keep going up every year. Apartment List’s monthly National Apartment List Rent Report shows that, “Our national rent index is continuing to climb, with month-over-month growth of 0.5 percent for June. Rents grew at a rate of 0.5 percent between May and June, which is generally in line with the monthly growth that we’ve seen over the course of this year thus far. Year-over-year growth at the national level currently stands at 2.9 percent, surpassing the 2.6 percent rate from this time last year. In addition to the growth on the national level, rents are now increasing in nearly all of the nation’s biggest markets.”
When you own your home, your payment is your payment is your payment. Unless you take out a home equity loan or refinance to take cash out, your payment’s not going to go up.
Here’s another bit of fun for renters: nothing you pay comes back to you. I mean, except for that security deposit, but that all depends on what effect your dog and those few parties you threw had on the condition of the home. As a homeowner, you get to write off all kinds of stuff, which lowers your overall costs. “Your biggest tax break is reflected in the house payment you make each month since, for most homeowners, the bulk of that check goes toward interest. And all that interest is deductible,” said Bankrate. “Did you pay points to get a better rate on any of your various home loans? They offer a tax break, too. The other major deduction in connection with your home is property taxes.”
And think about it this way: Even if your house payment is going to be a little bit higher than what you’re currently paying in rent, it’s not an apples-to-apples comparison. How do those numbers look when you calculate the tax savings?