Monday September 11, 2017
Do the Math
To find out if becoming a homeowner can actually save you money today, it's going to take a bit of number crunching.
Simply do the math, suggests Melissa Atherholt, a commercial and residential sales and leasing agent in the Maryland-Virginia area. Look at the current rental rates and use a mortgage calculator to figure out whether purchasing would be less expensive than renting.
For instance, say you were purchasing a home in Brooklyn, N.Y., and you needed to take out a $500,000 mortgage after the down payment. With today's interest rates, you might end up paying approximately $2,300 a month, says Jack Perlamuter, founder and managing broker of Perl Group Real Estate in Brooklyn. When compared to a two- or three-bedroom apartment at $3,000 per month, that's a $700 difference, or nearly $8,500 annually.
In a smaller market like Atherholts Frederick, Md., monthly rent for a townhome can run between $1,500 and $1,750. If purchased using a rural housing USDA loan, she says that same townhome would cost $1,375 per month, including taxes, principal, interest and even insurance, giving you a potential annual savings of $4,500 with the added benefit of building equity.
Of course, you would need to meet the qualifications and restrictions for these type of loans, some of which are even targeted to first-time homebuyers. That's when it's time to speak to a professional to get a better idea.
Get Professional Advice
There are a multitude of down payment assistance programs and other loan programs designed to help renters become homeowners. Speaking with a Realtor or financial advisor would be a great start in helping you find the program that could work for you.
I tell all buyers before we even look at a home, whether for rent or for purchase, to find a reputable lender and find out if they can be preapproved to purchase, says Atherholt.
This will rely heavily on your credit history.
It's important to speak with a lender to determine your creditworthiness, which directly relates to the proposed housing payment if you buy, adds Wendy Hooper, head of Coastal Village Real Estate in Newport Beach, Calif. Your credit score and the size of your down payment will directly impact your purchase housing payment.
Your trusted expert can help bring all this to light, guide you through the entire process and highlight industry and mortgage trends in your market.
Consult a Realtor or mortgage advisor to see what you can afford and how much you would have to put down, says Perlamuter. With interest rates being as low as they are currently, taking out a mortgage on a home you purchase can lead to a monthly payment that is often the same or lower than what you spend each month on rent.
Read the Signs
If you're not quite ready to head to the professionals just yet, there are a few other signs you can discover for yourself that might hint that you're ready” or not ready” for homeownership.
Dallas, Los Angeles and Washington, D.C., are more likely to have skyrocketed rents.
Most urban core areas are more cost-effective to own than to rent, Hooper adds.
Do you have a steady job in a city you don't plan on moving away from in the next five years? A steady job in a city you love is another great sign you're ready for homeownership.
Hooper says that five years is the typical amount of time it takes to recover the acquisition costs of a home and a steady job proves that you have a dependable income supply.
Do you know what equity is and are you ready to build it? If so, you're probably ready to start reaping this benefit and the others that homeownership offers, such as:
*Equity: Instead of throwing away money to your landlord, you're putting money into a property you own. After your home and all mortgage payments are paid off, you might find more value in your home than you knew was possible, especially in a booming market.
*Tax breaks: Homeownership can make you eligible for certain tax breaks on the interest within monthly mortgage payments. Therefore, you can get a lot of money back when you file your taxes every year.
*Insurance discounts: The difference in multi-line discounts for homeowners and renters is significant, Hooper says. In some cases, the auto rates discounts for homeowners can be twice those of renters.
*It's all yours: Finally, you are free to make that home as unique as you are ” as long as you stick to city and HOA ordinances. From pets, paint choices, design and architecture, you can create a home that completely suits your wants and needs. A lot of young people who join the workforce and maintain a good income are not aware of the opportunities they have as first-time homebuyers to own their own place, adds Perlamuter. While not everyone's first home is their dream home, becoming a homeowner prepares you that much more for eventually obtaining that perfect home you have always dreamed of.