In my early thirties, I asked myself why should I even think about buying a home vs. renting? It seemed so much easier to just rent… except for things like schlepping my stinky garbage in my car down to the dumpster or always having to dodge the kooky neighbor who lived too close for comfort. After a royal wipeout while sprinting through a parking lot thunderstorm to my apartment, the merits of owning my own garage and driveway became painfully clear. I shifted focus to a different kind of simplicity. The kind that control over your own space gives you. Bonus points if neighbors could be separated by ample terra firma on all four sides. And, yeah… a wheeled trash bin at my curb would be fab.
Of course I knew it would be a smart move financially to buy, if I could pull it off. I had heard the key reasons to invest in real estate: to preserve capital, build wealth for yourself and enjoy tax relief. (More on that here.) And I took stock in the stats that said my net worth would become 30-45% greater as a homeowner than as a renter. Then I found out that I could own a home for about as much as I was paying in rent. Rents were high, escalating rapidly and I kissed that money goodbye every month. I just needed to get a grip on the details of the mortgage process and take the plunge.
That was then and this is now…
Beyond the general wisdom of investing in real estate, when rents equate with what a mortgage payment would be on a starter home, it makes extra sense to pay yourself, not a landlord. This is the case now in many areas of the country.
The most pressing reason for this parity these days is because of your ability to borrow money on the cheap. Mortgage interest rates are dirt cheap at roughly 4-ish percent. They haven’t been this low for 40 years! See the graph showing 1971-2011. In fact, rates hovered around 10% for over a decade in the 70’s and 80’s… and they’ve been as high as 18%! Interest rates are so low at present, there’s really only one direction they’re headed. Up. Wouldn’t you just kick yourself to have to pay double or triple to borrow money, because you waited?
~Probably the most crucial element in buying a home is the amount of interest charged
that allows you to borrow money to buy it ~
If I had waited a just few months back in 1994 to pull the trigger to buy my first place, I would have paid 3% more in interest by the start of 1995. That difference would have increased my total mortgage payment significantly enough to make that house unaffordable. My buying power would have been diminished. Finding a lesser-expensive home would have been an unattractive option, in an undesirable neck of the woods. My buying capacity was “entry level” in the first place!
A horse of a different color
So, my rent payments became mortgage payments. A very attractive painted pony. I wasn’t just throwing money out the window every month. My monthly mortgage payment was actually going right back into my pocket. It was like a ready-made savings account because I was building equity in my home ownership.
Equity builds in two ways. First, you own more of your home as you pay down the principle. Secondly, property values rise / appreciate. Historically, real estate has had a long-term, stable growth in value. In fact, median single-family existing-home prices have increased on average 5.2% each year from 1972 through 2014 according to the National Association of REALTORS®. Even in the last ten years– with the recent housing crisis in the mix– values are still up 7.0% on a cumulative basis. Demand for housing is expected to increase 10 to 15 percent over the next decade as well, which will aid in future home value appreciation.
Saddle up and ride
Need a new car? Want to travel? Need some cash for that? There pretty much is an APP for that. You can basically take a withdrawal from your “savings account” once you’ve built up an equity stockpile. You can take out a home equity line of credit (HELOC, which is a second mortgage) or do a cash-out refi in a few short years (redo the first mortgage for the home’s higher value and take the equity difference between it and the old loan balance in cash). You have powerful options to control emergencies or plan for special life events by way of tax-free financing, all while still grilling in your own backyard.
Having more control of your destiny gives you greater peace of mind. At minimum, just knowing that your fixed-rate mortgage payments won’t rise over the years is stability that renters don’t have.
Speaking of stability, when you become a “Homeowner”, the world deems you as more stable and a better credit risk. With this new and improved status, come other perks that save you money. You get better rates on car insurance. You get better interest rates on car loans and furniture financing plans. You even get a more favorable nod from employers over your competition when job seeking.
Your first rodeo
So, why should you bite the bullet and buy your first home asap? Because home ownership is the most readily-doable pathway to wealth building, especially with the current ability to use other people’s money cheap. It’s a rare, leveraged investment… you can’t put down $5K for $100K worth of stocks! (Learn how you can afford to buy a home by giving yourself a raise here.)
And you don’t have to be uber picky. Your first home is not going to be your “Forever” home. Look at it as your stepping stone to wealth building. You’ll sell it and cash in on its appreciated value. You can then move up to a better home purchase the next time with a hefty down payment at the ready. The younger you are when you start, the better.
(Now, what if I told you there were programs that eliminate the need for saving money for the downstroke?! Zero down and zero closing cost programs do exist and are not scams. Far from it. Stay tuned Kemosabe… I’ll show you HOW to find the money.
Roll through to the rest of my series: “The Benefits of Buying New-construction Homes vs. Pre-owned”; “All About Boosting Credit Scores” and “What is Debt-to-Income Ratio?”
“So, who can help me with all of this?”, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.
Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.
Think of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.
Pull the trigger, you’ll be glad you did. I will show you the money!