Are you renting now? Have you been renting for several years? Is your rent increasing…again!? I suggest a possible solution so you will be lowering your housing costs and increasing your wealth. Consider buying a home. If you are approved for a 30-year fixed rate loan, then your payment will be the same for 30 years. It will not increase! WOW.
Below are a few more great reasons to buy a home:
• Appreciation — home prices generally increase.
• Your wealth — as you pay off the mortgage your equity rises.
• Pride of ownership — it’s yours!
• King of your castle — you can do whatever you want to it.
• Garage storage — for cars and stuff.
• Tax write-off of interest expense on your taxes.
• It’s cheaper than renting – read under Goldman Sachs below.
Here are a few things you will need:
• At least 3.50% in a down payment — here’s how to save for it.
• Two years constant and documented income.
• Credit score of 580 or higher — learn how to improve your score.
The Mortgage Fee Coach also suggests:
• Live in the home for the next 5+ years, so you can take advantage of the appreciation.
• Have a steady job and income. You do not want to default on the payment.
Goldman Sachs Says Owning Is Less Expensive Than Renting
In recent research, Goldman Sachs (GS) found that for a typical 30-40 year old — Millennials would be in this group — it is still cheaper to own than to rent. Goldman Sachs used the GS Housing Affordability Index (HAI). Their HAI focused on homebuyers who could afford a 5% down payment and who have to pay mortgage insurance. According to their research, real rental costs jumped 30% from 1980 to 2013, which is less than 1% annual average growth. Here’s the problem: during this same time period, real income for renters remained stagnant, indicative of elevated rental burden. This means that renters who used to spend one quarter of their income on rent, now find that their rental cost has jumped to one third of their income. Note: In some parts of California, single-family home rental rates increased by as much as 17% year over year 2015 vs. 2014!
Because 30-40 year olds are the ages at which people transition from renting to owning, Goldman Sachs used the median income to compare the actual rent paid by this age bracket for 2-bedroom multi-family rental units with the monthly Consumer Price Index (CPI) rent. Their findings identified that these two data points were closely aligned; therefore the CPI rent was used to measure rental affordability. Goldman Sachs’s comparison indicates that from the early 1990s to 2000s, buying a home with a mortgage was more affordable than renting. Although renting was less expensive during the mid-2000s, the current situation indicates owning should be cheaper than renting as lenders ease credit standards, and housing starts will increase supply, driving prices down as the 2016 year unfolds.
Zillow Agrees
According to Zillow, buying remained a better bargain than renting at the end of the second quarter of 2015. Home values and rents have seen an increase, as the median home value has risen 3.3% and median rent has increased 4.3%. This means someone looking to rent the median-price home and making the median income should expect to pay 30.2% of their income each month on rent, whereas homebuyers might anticipate paying about 15.1% of their income on a mortgage for a median priced home (depending on where you live, of course). According to Zillow, the national average income share to support the rising rent prices is at the highest level ever, whereas the share of income needed to purchase a home is at all-time lows.
Home prices are higher in California. So are rents. So while it might be difficult, try to tighten that belt to save for a down payment. It is doable! You will be glad you did, because now is the right time to buy.
I’m the Mortgage Fee Coach, Dan Stone. I can find great sources for financing your new home, and would be glad to give you a FREE 15-MINUTE CONSULTATION to inspire and motivate you.
I WOULD LOVE TO SEE YOU IN A NEW HOME INSTEAD OF COLLECTING RENT RECEIPTS!
Please call 949-484-6322 now.
Or send an email to Dan@MortgageFeeCoach.com