Seven Reasons To Stop Renting

Dated: 08/16/2017

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Are you still renting? You must have a valid reasons. Although, I'm not really sure what they could be. 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. Now, maybe you've got challenged 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. But, if you're still not on board with purchasing a home these seven reasons might change your mind.

Reason #1 is because owning a home is still less expensive than renting across the country - An annual survey from GOBankingRates came out recently showing the cost of renting versus owning a home in all 50 states.  What they discovered was that in 39 states, including California, it still makes more financial sense to buy than rent. In addition, if you were to remove a few cities such as San Francisco and Los Angeles from the equation that skew the rent vs. buy numbers and factor in tax savings and equity, buying is certainly better than renting. 

Reason #2 is Rates are still near historic lows - We are really spoiled.  Anyone who has been paying even a little 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 will always be that way. But, history has a way of repeating itself, and while we may not see rates into double digits anytime soon, most industry experts have been predicting rates could move into the 5s in the near future. So, buying a home now while money is less expesnive is a smart move. Even a difference of 1% can have a major impact on your total payments over time. For example, a $400,000 mortgage for 30 years at an interest rate of 5 percent would require a monthly payment of approximately $2,150. By comparison, the same mortgage at 4% would result in a payment of $1910.  That might not seem like a big deal every month.  However, consider the long-term potential; over 30 years, the total difference between the two would be $86,400. That's a pretty huge savings to consider.

Reason #3 is FHA loans and the like make it easier to qualify - Do you have an 800 credit score? If not, you don't need to today. FHA credit 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 utilize FHA loans is 683, according to Ellie Mae. That's considerably lower than the average score of 753 for conventional mortgages.

Reason #4 is a little thing called equity - Rising rents may or may not equate to rising property values in your area. But, either way, if you are renting, 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 into your equity for home improvement projects, the money is yours to decide how to use.

Reason #5 is the days of the 20 percent down payment are all but gone - Does 20% down make it more likely that you'll qualify for a loan? Sure. Does that mean you have to come up with that large of chunk of money? No. You don't even need to come up with 10%, which, for some reason, the majority of new buyers seem to believe. According to a recent survey by Mortgage Reports, 87% of first-time home buyers think they need 10% or more down to buy a home. The FHA loan is one of the most popular loans available to first-time buyers. Not only can you qualify with a lower credit score, but the down payment is as low as 3.5% and, "100 percent of the down payment can be a financial gift from a relative or approved non-profit organization. There are also down payment assistance programs. And, FHA is not the only option for a low down payment. There are conventional mortgages that just require 3%. There are even other programs that require only a ½ to 1% down and even programs such as VA and USDA that are 0% down. So, don't wait!  Find out what options are available and are best for you.

Reason #6 is rents keep rising - Rents in the greater Sacramento area are up a whopping 7.4% this year compared to last year. The greater Sacramento area has the third highest rent increase in the nation. Keep in mind that when you rent, your rent amount can and will change and most likely will go up. When you own your home, your payment is your payment is your payment. On a 30 year fixed mortgage it will never change unless you take out a home equity loan or refinance to take cash out.  If you keep that loan in place it will never change and you will smiling like a kid in a candy store when you have paid your home off and other people that waited are still paying rent.

Reason #7 is tax breaks - 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 labradoodle or cat  and those parties you threw have on the condition of the home. As a homeowner, you get to write off quite a bit which lowers your overall costs. Your biggest tax break is reflected in the house payment you make each month. For most homeowners, the bulk of that payment goes toward interest. And, all that interest is deductible. 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? Run those numbers on an online calculator and you can't help but agree that buying is better than renting.

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