A new survey shows that 81% of the renters would rather own their home if they could, so what is holding them back? A lot of it is perception and lack of knowledge, data reveals. Of course home ownership isn’t for everyone and some people just can’t afford it, but increasingly, owning a home can be even less expensive than renting. In fact, a report by Trulia shows that once you add up all costs and factor in tax savings, etc., owning your own home is 38% cheaper than renting nationally. So if you now rent but think you can’t afford to own a home, you’ll be overjoyed to read these 10 reasons why you’re probably wrong.
- Renting is now twice as expensive as owning a home.
First off, it’s cheaper than you think to buy a home considering how expensive the alternative is: renting. It’s now about half as expensive to be a homeowner than it is to rent in the United States, a revelation Zillow discovered when they tracked the monthly allocation of income toward mortgage, or rent for those who did not own their own home. As of the third quarter of 2014 they found that renters paid an average of 29.9% of their monthly income toward rent, compared to an average of 15.3% for homeowners. The study aimed for impartiality by measuring only a segment of the population who owned the average home in their market, versus renters.
- And renting is getting even more expensive.
If you think renting is expensive now, just wait while they keep rising. In fact, half of all U.S. renters pay more than 30% of their income to rent every month, which is the accepted barometer for housing affordability. That’s a marked increase from only 18% of renters paying more than 30% of their income a decade ago. The problem is even worse for those on the lower end of the economic scale, and an astounding 30% of renters pay at least 50% of their income to housing costs. California is one of those states where at least half of all renters pay more than 30% of their income toward rent.
Want even more bad news (if you’re a renter)? Since the real estate crash and recession, there’s been a profound shortage of affordable apartments, condos, and houses, particularly in popular metropolitan areas. Rents have risen steadily over the last few years and experts are calling it one of the biggest imbalanced rental markets ever. That means what you spend on rent every month will probably keep going up in 2016.
- Build wealth with home ownership.
Owning a home is still the best path to accumulate wealth, achieve financial stability, and get ready for retirement. Since owning a home allows you to build equity over time AND pay down your loan, your home – and mortgage – are basically like forced savings plans. A study by the Federal Reserve found that median home equity in the U.S. for all homeowners is about $80,000. That means they have a “savings plan” of $80,000 on average (although home values can go up and down and aren’t easy to access, of course). Just as important, the average homeowner keeps $7,300 in liquid cash savings, compared to extremely low savings levels for renters that keep them living month-to-month.
- You don’t need a big down payment.
50% of renters surveyed reported that they couldn’t buy a home because they couldn’t come up with the down payment. However, renters also typically grossly overestimated the amount of money they’ll need for a down payment. For instance, 36% of renters believe that it always takes a 20% down payment to buy a home, but that sure isn’t true any more. In fact, 30% of current mortgage loans for home buying have a deposit of only 3% or less, including 11% of all conventional loans are done with 3% down or less, and 83% of FHA loans are require 3% or less.
- There are plenty of creative ways to save that down payment.
But even if 3% down payment ($9,000 on a $300,000 home) seems like an un-savable sum, don’t abandon your dreams of home ownership. With education, careful planning, and some sacrifice and diligence, you’ll be amazed how fast you can compile enough money to put down on a home. Need some ideas how to save? You can take your lunch to work, make coffee at home, skip restaurant meals, cancel this year’s vacation, get a part-time or weekend job, save instead of giving holiday gifts, allocate your tax return refund, trade in the new car for a reliable used car, start an online business, or utilize dozens of other ways to save the money you need for a home down payment in a year or less.
- A good credit score is important – but not prohibitive.
41% of renters surveyed say they’d love to own a home BUT they won’t qualify for a mortgage because of their credit score. A good portion of them are wrong. But don’t you need a great credit score to buy a home? While a good credit score is important (for your whole financial picture – not just buying a home), there are plenty of ways to build and repair your score before you apply for a mortgage. Even four to six months is usually enough time to clear up inconsistencies, errors, false reporting, pay down debt, and build positive tradelines for a new and improved score when it comes house hunting time.
- What credit score do we need to buy a home?
Renters vastly over-estimated what credit score is considered “good.” In fact, a recent survey showed that two thirds of renters thing believe that they need a “very good” credit score to buy a home, and 45% define that as over 780! But the average credit score in the country is almost 100 points less than that, and FHA and loans ideal for first time buyers can even work with scores into the 500s!
- There are programs to help first time homebuyers.
There is no denying that buying your first home (and getting your first mortgage) can be a confusing and overwhelming process with a steep learning curve. But it’s important to know that there are so many resources and places to get help for first-timers. Many banks and lenders have special programs for first time buyers, and governmental agencies like FHA, the Federal Housing Authority, specifically try to aid new buyers. In some locations and markets there are even grants or down payment assistance programs, so one way or another, you probably will have to invest way less than 20% for a down payment, and all of your questions and concerns will be addressed.
- As a renter, you’re missing out on great tax deductions
Owning a home is still one of the best tax breaks you´ll ever get. In fact, the interest you pay on your mortgage is tax deductible, as are the property taxes you’ll pay, and a lot of repairs and upgrades you make, meaning you keep much more of your hard earned paycheck in your pocket. And when it´s time to sell your home, there are generous tax laws that allow you not to pay proceeds on the profit up to a certain point if you´ve owned it two years. Consult your CPA or tax professional for specifics, but he or she will most certainly encourage you to buy your own home!
- Home maintenance is a lot less than you thought
Since renters only have to call their landlord when something breaks, they often vastly over-estimate how much it costs to maintain a home. A survey by NeighborWorks revealed that renters thought it would cost an average $20,053 for home maintenance repairs each year. But in reality, that number usually falls between $2,000 and $6,000 every year nationwide.