According to a recent report by Harvard University’s Joint Center for Housing Studies, the past 15 years have seen a drastic shift in how Americans approach renting and owning. More people are renting, while fewer are buying houses. In fact, the average annual growth number for renters is now approaching the peak number for homebuying reached in 2006, just before the housing market crash.
The reasons for such explosive rental growth are numerous: lingering effects from the economic collapse in 2008, the revitalization of many urban cores, Baby Boomers aging out of their houses, and high rates of student loan debt among Millennials. Many millennial renters are postponing “next-steps” like marriage or starting a family, and still see home ownership as out of reach.
But should they? Maybe not. We at ABODO know a little something about renting, and have broken down four of the most common myths about buying a house versus renting an apartment.
MYTH #1: Ownership Is More Expensive
Not always — at least month by month. As demand for rental properties has grown, so have rents. In fact, in 2015 rents nationwide rose 4.6%, the largest increase in almost 10 years. According to a recent study, it’s cheaper to buy a house than rent it in 42 states. The overall price tag might give you sticker shock, but more often than not, a monthly mortgage payment will be comparable (or less) than rent, and at least you’ll be gaining equity. Plus, mortgage interest payments are tax-deductible. This handy calculator from the New York Times can tell you if homeownership might actually be a good financial move.
MYTH #2: Your Savings Will Be Depleted, Forever
You might think that after a downpayment, and mortgage payments, and furnishing, and repairs, and maintenance, and property taxes… saving money is a lost cause. But think of it this way: Every mortgage payment that pays down principal and interest is a kind of “forced savings account.” You have to pay it, so you do. But unlike a rent payment, that money isn’t vanishing into the ether (or, as it’s more commonly known, your landlord’s pocket). Assuming you don’t default on your loan and go into foreclosure, you’ll see that money again, in a different form. By establishing equity in your house, you’ll be seeing long-term value in the form of an investment. You’ll also be eligible for new lines of credit. It might take 30 years, but it won’t be 30 years of checks down the drain.
MYTH #3: You Can’t Get a Loan
Yes, the days of subprime lending are over — and thank goodness, given how that turned out. Given the events of 2007-2009, banks are understandably cautious about handing out large loans for new homeowners. But that doesn’t mean it’s impossible. In 2014, Fannie Mae and Freddie Mac announced a new initiative, aimed at encouraging first-time homeowners, that backs mortgages with extremely low down payments — as low as 3%. There are conditions, of course: Potential homebuyers must buy private mortgage insurance and have a high credit score (at least 620). But such a low down payment (the standard is 20%!) is a major help for younger homebuyers who might still be paying off student loans.
MYTH #4: You’re Too Young to Own
According to the National Association of Realtors, over 35% of new homebuyers in 2015 were Millennials, making them the largest group of recent buyers for two years running. And the median age for Millennial homebuyers was 30. So it’s not just Gen X or Boomers buying houses. (In fact, Boomers are moving into apartments in droves.)
Convinced? We hope not. It takes more than just an internet article to know whether you’re ready for homeownership. In addition to this list, take an honest and hard look at your finances, your life goals, and your tolerance for home-repair before you commit. But if you decide to go ahead on the rewarding path of homeownership, get in touch with Jodi Toebe RE/MAX Realty Center to set up a consultation. And happy house-hunting!
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