“I’ve never really thought about buying a house… I guess I didn’t realize it was even an option for me.”

I’ve had many conversations with people seeking housing who ASSUME they can’t own a property. Some have been genuinely surprised when they discover it is not as far out of reach as they thought. Even if homeownership is not something that is in your immediate future, I feel strongly that you should consider having a plan in place to work toward a home purchase.

You’ve heard me say this many times before…

Homeownership is one of the greatest ways to build wealth!

With that said, there are situations where renting might make more sense. Here are a few:

1. You plan to relocate again in less than 5 years.

2. You are working on correcting a low credit score.

3. If you are newly self employed. Note: This is because a lender will need a couple years of tax returns showing your self employment income history to qualify you for a mortgage.

Common excuses!

Let’s take a look at 3 of the most common hesitations I hear from those who are unsure if buying is in the cards for them!

1. I don’t have enough money saved for the down payment and closing costs.

   Many consumers believe they will need at least 20% of the purchase price saved in order to purchase a home. This is not true! There are various options out there for mortgages. Some options require as little as 5% down.

   For a $300,000 property, that is $15,000.

   There are also programs out there for first time homebuyers where you may qualify to receive down payment assistance!

   I recommend having a conversation with your lender to see what programs you qualify for and to determine how much you will need to save.

2. I won’t be able to afford a mortgage payment.

   This is another misconception for many renters. Remember, if you are renting a home, you are paying your landlord’s mortgage!

   Let’s look at a hypothetical situation:

   Purchase Price: $250,000

   Down Payment: 5% = $12,500

   Property Taxes: $5,300

   Monthly Mortgage Payment: Approx. $2,300 per month

   If you are paying $2000 or more a month on RENT, you most likely can pay a mortgage!

3. The real estate market seems crazy. I’m going to just wait until everything settles down.

   First, I want to direct you to read my post ‘Can You Time the Real Estate Market?’. Trying to time when the market will perfectly favor your personal situation may just be impossible. When you are ready to buy/sell a home, the key is to UNDERSTAND the current market conditions and develop a strategy on how to best reach your goals.

   Let’s talk about the COST OF WAITING.

   RENTING COSTS - Let’s assume you are renting a home for $2,000/month. For that first year you will pay $24,000 in rent. On average, your rent will increase by about 2%-6% per year. Assuming your landlord sticks to the lower end, your rent will be $2,040/month for year 2 and $2,081/month for year 3.

   Over 3 Years Time you have paid $73,452 in rent.

   The benefits to renting are that your housing needs are met and you are not responsible for property maintenance costs. The downside is that you do not have a financially invested interest in the property.

   HOUSING INFLATION - Now let’s look back at that $250,000 home that you did not buy because you were waiting for the market to shift.

   TIME STAMP 3/30/23: I recognize that there is a possibility that some communities will experience a home value correction after years of surging prices, but let’s assume the inflation simply slows to a normal rate.

   Real Estate increases in value over time. In recent years we have seen some wild inflation rates, but an average inflation expectation is 4% each year. That $250,000 house 3 years later is now worth $270,400 with just average inflation.

   The numbers would then look like this:

   Purchase Price: $270,400

   Down Payment: 5% = $13,520

   Property Taxes: $5,300 (assuming taxes have not increased)

   Monthly Mortgage Payment: Approx. $2,434 per month

   
   

   PITI

   Your monthly mortgage payment includes Principal + Interest + Taxes + Insurance. The important fact to remember is that each month you are paying down the principal amount owed on your loan. This means you are building equity in your property!

   
   

   Every time you make a mortgage payment, you are building your wealth!

   Each year you hold the property, it gains value!

Not in the position to buy?

I fully understand that there are many reasons why you may not be in a position to purchase a home right now. I have been there myself! But while we were renting, we had a plan in place to position ourselves to purchase.

Your financial path to homeownership may take a few years to reach, but with professional guidance and personal commitment, you will make it happen! Reach out to a Realtor who will be able to provide you with an update on the current market conditions and give you some guidance on steps you can take toward your real estate goals.

EMAIL EMILY WOODS: emily.woods@veryre.com