Rent or Buy?
Buyer Agent Bobby McDonald of The McDonald Group at Wilkinson ERA breaks down the rent vs. buy decision for the Charlotte area. Check out his Zillow reviews or sign up for your FREE 1st Time Home Buyer Guide below.
One of the most common questions from 1st time home buyers is whether or not they should buy now or wait for another year (or two). There’s actually a lot packed into this question and as such, I thought it would be useful to discuss it more here! Some basic stats on the market currently and home ownership before we dive in:
- Home ownership’s impact on net worth is astounding. Home owners have, on average, a net worth 36x greater than the average renter
- 40% of all home purchases in 2014 will be from 1st time home buyers like yourself
- Interest rates/home prices are projected to increase in 2015
- Rents continue to rise while the cost of home ownership is at near all time lows
As you might have guessed by the stats above, if you have saved a bit, and expect to be here in Charlotte for at least a few years, home ownership makes sense, it may be a condo/townhouse if you’d prefer less maintenance.
Is the lack of a down payment holding you back? Ask Me About Our Low and NO Down Payment Loan Options
The benefits of home ownership include (data from a Harvard study on the financial benefits of home ownership):
- Purchasing a house is a leveraged investment and one of the few available to normal Americans. For example, if you put 10% down, you have a leverage factor of 10 meaning that for every one percent the home increases in value is a 10% return on investment! Wow… so you buy a $200,000 home, a 2% appreciation rate raises the value 4K per year. Some Charlotte neighborhoods are increasing 5-10% per year.
- You’re paying for housing whether you own or rent – why not pay your mortgage instead of your landlord’s? And deduct if from your taxes too!
- Owning is a form of forced savings. When paying a mortgage, you’re increasing the equity in your home and your overall wealth
- There are substantial tax benefits to owning a home. After two years owning, capital gains taxes on homes under $250k are waved for individuals and under $500K for married couples. This means that you could move every two years, make money of off improvements/appreciation and never pay taxes on that income!
Ok, so those are some very solid benefits! What are some of the common objections and issues getting in the way of home ownership?
The most common objection? Fear!
Fear of making a mistake is a real and often the main objection to home ownership for those 1st time home buyers who have good credit and can afford it. A real estate meltdown (back in 08 and 09) will do that to you! The good news is the real estate market is on much healthier footing now and most of the neighborhoods in Charlotte are back at pre-recession values or higher.
For 1st time home buyers, having two key partners you can trust throughout the process is essential to avoid those pitfalls and landmines. The first is a high quality buyer agent (I have a suggestion here:-) who can help you sort through the homes, the neighborhoods and the process of buying your first home Remember, I look out for your best interests Above all others, when the listing agent, the gal on the sign, only looks out for the sellers!
The 2nd is a quality lender who can help you secure financing. I would highly recommend using a local lender instead of the big banks. Local lenders work on commission. What this means to you is if your home doesn’t close, they don’t get paid. Compare this to the big banks where their loan officers work on salary so your closing date is treated more like a recommendation than a hard date. This may seem like a small difference, but the difference in outcomes is too consistent to ignore. Quality local folks close on time, the big banks? Rarely. Run into a bump in the road? Local lenders work through it, the big banks? They say, “Sorry, next?” I am not kidding at all, a quality local lender will get your loan done, and on time!
If you’d like to learn more about the process, I’d encourage you to sign up for your free 1st time home buyer guide, full of useful info on the benefits and the process of purchasing your first home.
Down Payment/Closing Costs Assistance
Most 1st time home buyer loan packages available today require a down payment of 3.5% to 20%. There are several special programs that would allow for no down payment, notably if you are a veteran, the VA loans up to $417,000. The State Employee Credit Unions ( and the associated one for police and fire) offer low interest, no down payment loans to state employees, from teachers to anyone who has a SECU account. In addition to the down payment, there are usually significant closing costs (at least a few thousand bucks). However, a quality Buyer Agent may be able to negotiate these into the purchase price :). If you make $50K or more a year, and have good credit, we can find you a house that will work, and you might find you can move in for something comparable to a rental deposit and first month’s rent! We have written about this in more detail here
Low and NO Down Payment Loan Options
For some loans your down payment can be a gift (or a personal loan) from the parental units, so it is really the job, the income and credit that count.
Pay More, Get Less in 2015
Take a look at the table on the right. By this time next year interest rates are projected to be above 5%. This will greatly reduce your purchasing power – as much as $50K less house! In addition to interest rates rising next year, home prices will also continue to rise/recover. Some of the hottest neighborhoods in Charlotte are seeing double digit appreciation numbers in 2014. So while you might get that raise next year, the home prices in the top neighborhoods in your budget will have also increased significantly. Long story short, if you wait until the summer or even longer, you will in all likelihood, spend more money for less home. You really can not save faster than the price movement.
It’s not surprising that the real estate agent in the room would be advocating the benefits of home ownership 🙂 But if you are pretty sure you are going to be here for the next 3-5 years, with historically low interest rates, with low or no down payment loan programs available, it has the benefit of being the truth! If your monthly rent is in the $1200+ range per month and you have good credit (680+), you can own a nice home or townhouse! So what are you losing if you chose to rent for another year or two?
- Missing out on historically low interest rates
- You’ll pay more for less in 2015/16 as home prices increase and interest rates rise
- Paying another 12 months of your landlord’s mortgage is a significant chunk of change! (ex: $1250 x 12 months = $15k!!!)
Don’t miss out! I work with my Dad, pictured on the right. Click on his photo or mine to see our Zillow reviews, we work with first home buyers every day. We understand your questions and concerns, and will never rush you. We don’t work that way, and as your Buyer Agent, we promote your interest above all others. We’ll answer your questions and work hard for you, guaranteed! If you have unanswered questions about the process or your situation, give me a call (Bobby) at 704-351-0987 or Terry at 704-390-6221
You don’t have to take my word for it. Check our Zillow reviews and sign up below for your free 1st time home buyer guide. It’s full of useful info on the benefits and process of home ownership and all of its data was pulled from a Harvard study on the financial benefits of home ownership over time.