Mortgage interest rates are still very low, making home-buying attractive, but renting has its own advantages to consider.
To rent or not to own: That may not be the question.
If you’re looking for long-term investment and stability, West Valley home ownership may be a very good path to pursue.
“Now is a great time to buy, since interest rates are still historically low and lenders have more flexibility than they did a while back,” said Lisa Johnson, a Realtor with Berkshire Hathaway HomeServices Arizona Properties from its Scottsdale office. “We’ve got a fairly balanced market between buyers and sellers in the mid-range homes, with days on market at about 90 days, while rental rates are currently trending upwards.”
Because mortgage interest rates are still very low, now is not bad.
“As interest rates increase, a buyer’s purchasing power doesn’t go as far; in other words, they can’t buy as much house for the same monthly payment,” said Steve Howard, branch manager from the Phoenix office of HomeStreet Home Loans, Seattle, Wash. “Depending on an individual’s financial circumstances, taking advantage of low interest rates may present a great opportunity for home ownership.”
Of course, renting was bullish in the Great Recession, when people didn’t have down payments and lenders were just not doing that.
“If something goes wrong and needs repair, you simply call your landlord to make the necessary fix,” Howard said.
And, renters can move as needed without a long-term obligation, and they don’t risk money on valuation declines because there’s no ownership.
But, rental downsides never move away.
“When you rent, you might not be able to have pets or redecorate the space, and the landlord can raise your rent every year,” said Johnson, who handles properties in the West Valley and elsewhere.
Renting costs typically include a security deposit, usually equal to a month’s rent; a cleaning deposit, which may or may not be refundable; pet deposits, which might be a fixed amount and/or an increase in the monthly rent for each pet; and application fees and credit check fees for each adult.
Owning, however, creates a sense of stability and community investment.
“You can change, decorate or remodel your home to reflect your personal taste and have pets,” Johnson said. “In most cases, a home is a great investment, and the money you put into a house builds equity for you, not your landlord.”
Your payment is basically stable throughout the life of the mortgage and a home usually appreciates enough within five to seven years that you can sell at a profit, she said.
“Or you could buy another home, become a landlord and have your tenants making the mortgage payments for you,” Johnson said. “It could be a great addition to your retirement portfolio.”
Mortgage interest and mortgage insurance may be tax deductible for homeowners, and this can represent a substantial tax benefit, although this is subject to change, Howard said.
Why wait? Two common reasons why people do are the monthly payment and the availability of funds for the down payment.
A 30-year fixed mortgage with a $200,000 loan amount at a 4 percent rate has a principal and interest payment of $954.83, Howard suggested as an example.
If 30-year fixed interest rates were to increase by only 1 percent to 5 percent in the future, this will increase a buyer’s monthly payment to $1,073.64 per month.
“Now, the same payment of $954.83 would cover a mortgage of only about $178,000, thereby reducing their buying power by $22,000,” he said.
Johnson and Howard note that, for qualified buyers, there are down payment assistance and loan programs that only require a 3 percent down along with closing costs, which include a portion of the title insurance and lenders fees along with pre-paid homeowners insurance and taxes, which are impounded in an escrow account and are paid throughout the year by the loan servicer.
But before you buy:
Johnson: “Sit with a real estate professional and a mortgage broker to go over your individual situation to decide what will work best.”
Howard: “Do your research and due diligence on where and when to buy to minimize the risk of asset-valuation declines. Create a budget in order to determine exactly a comfortable mortgage payment. And, make sure to account for other expenses, such as home owner’s association dues, utilities, property taxes, homeowners insurance and potential repairs.
“Deciding to own a home should be in line with your overall lifestyle and financial goals. Buying a home should be considered a long-term investment and not be taken lightly.”