While the timeline to buy a home is different for everyone, the question remains: Should I continue renting or is it time for me to buy? The answer depends on your current situation and your future plans, so here are some of our as you decide if you are ready to take the real estate plunge.
Low-Interest Rates: As we all know, interest rates are at historic lows. And while they are expected to increase a bit in the coming year, predictions suggest they will remain slightly above 3%. Lower rates, of course, means more buying power, but having just come through the height of the selling season, we have seen home prices jump significantly as well. The coming months should tell us if the market will flatten as we move into the Holiday Season. We suspect they will continue to rise but probably at a slower pace.
Rents will Continue to Increase: When speaking with our first-time homebuyers, their #1 reason for entering the real estate market is concern over incremental rent increases. Low inventory in both the sale and rental markets, combined with the significant increase in home values, validates that concern. According to the Dyer Sheehan Group, a Ventura-based housing market analyst and land-use consultancy, overall average rent across Ventura County increased from $1,392 in July 2009 to $2000 in July 2019. It does appear that new home building in Ventura County is on the rise but locking in a mortgage payment is extremely attractive in this type of market.
Equity Building: If stabilizing home costs is the #1 concern for homebuyers, then #1-A is the desire to increase net worth through home equity building. Renters build equity for their landlords while homeowners build equity for themselves. Home equity is tied directly to net worth, and net worth is connected directly to personal financial security.
Make it Your Own: This is also a big decision-making point for many. Home upgrades such as painting, carpeting, etc. are usually determined by the landlords and likely based on profit margins. Homeowners have the freedom to personalize their home and truly make it their own.
Tax Advantages: Homeowners enjoy tax advantages as well. Property taxes and mortgage interest are tax-deductible, though you always want to check with your accountant to determine which available tax benefits apply to your situation. Renters’ tax benefits go directly to the landlord.
Flexibility to Relocate: One downside to owning vs. renting could be the flexibility to relocate on short notice. If you are renting, it is easier to move quickly should you have a job transfer or simply decide its time for a change. In today’s market, that may not be the case due to low inventory and homes sales happening at a record-breaking pace, but selling a home is more complicated than breaking a lease. Also essential to keep in mind that in most cases, home sellers can only defer capital gains taxes if they have lived in the home for more than two years.
Maybe not directly a pro or a con to renting vs buying, but often an obstacle for first-time homebuyers is the down payment. The standard down payment on a conventional home loan is 20%. This means on a $600,000 home, you would need to come up with $120,000 plus your closing costs. Of course, VA offers $0 down payment loans and FHA, 3% down so there are options for those who qualify. Keep in mind that there is almost assuredly going to be Mortgage Protection Insurance (MPI) that comes with low down payment loans. Current interest rates could offset this added cost. There is also a variety of down payment assistance programs offered by individual banks and lenders. Still, these usually come with additional built-in costs, so it is essential to do your homework before taking one of these on.
Trying to decide whether to move into homeownership or continue to rent can be challenging. There are obstacles in addition to other basic pros and cons. If you would like to learn more about what options might be available to you, we’d be happy to help you sort them out. If it turns out that the time isn’t right for you, rest assured that you will get no pressure from us. We pride ourselves on knowing that your best interest is our best interest. And we welcome the opportunity to demonstrate that to anyone who comes to us for help.