“Should I keep renting, or should I buy?” This is a recurring question of anyone with a landlord, and JMAC brokers are often asked about it. The answer to that question is most assuredly, renters should buy. That being said, increasing numbers of renters these days are not taking action. Some believe that we will see another real estate bubble, or another recession. But it could also be likely that renters simply don’t realize that they can afford to buy. Here are some reasons why buying can be both attainable and affordable, and why now may be a smart time for our broker’s clients to consider home ownership.
Unlike renting, buying a residence is an investment. Every time you pay your mortgage, you are increasing the equity in your home and your own financial wealth, versus paying rent, which is only increasing your landlord’s financial wealth. Moreover, rent payments in many US markets are increasing each year, but the payment on a 30-year, fixed-rate mortgage doesn’t increase.
It’s good to remember that a seemingly small increase in the value of a home can translate into a high percentage return on a borrower’s investment. For example, a borrower purchasing a $100,000 home and putting 20% down or investing $20,000 would actually enjoy a 22% return on their investment if the home grew just 4.4%.
Incomes are ahead of home prices and low interest rates are keeping ownership affordable. The national family median income is $64,751; to purchase a home at the median price with 20% down would require an income of $40,266, or $45,299 with 10% down.
Lastly, JMAC brokers know that mortgages consume a smaller share of household income than they did in the past. Today’s owners devote 15.3% of their incomes to a mortgage, which is well below the 22.1% their mortgages consumed between 1985 and 1999. Meanwhile, according to Zillow, renters put roughly 29.5% of their income to rent, compared to 24.9% before the bubble.
As you can see, the numbers make a solid case: owning could very well be the better option and is achievable for qualified borrowers. One of the main things keeping renters from being owners is that they haven’t done the research or reached out to learn more about how they may be able to finance a home.