Nov 23 2021

Could Your Monthly Expenses Go Down By Buying a Home?

Would it be cheaper to rent rather than take on the cost of mortgage payments? Or would monthly expenses be lower by buying a home rather than renting?
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There are a lot of things to think about when contemplating purchasing a first home. One question that often comes up is concerning monthly expenses. Would it be cheaper to rent rather than take on the cost of mortgage payments, etc.? Or would monthly expenses be lower by buying a home rather than renting? This is one of the most important questions would-be first time homeowners consider.

The truth is, the answer isn’t always simple because there are many variables at play that could tip the scale one way or another. That is why it is crucial to understand the costs associated with renting or buying; what that might mean for your budget in the short term and long term is crucial to ensure you make the best decision possible. The more time you take to identify opportunities in the market versus what you can afford, the easier it will be to decide whether to rent or buy.

For this article, we’ll look at the different factors that can come into play regarding monthly expenses and whether renting or buying could be the better decision for your individual circumstances.

Compare Properties

The first thing that needs to be considered in the debate around monthly expenses is the properties themselves. It is not unusual for a monthly mortgage payment to be lower than the monthly rent on a comparable property. But the keyword here, of course, is comparable. The rent versus mortgage decision must consider the city, location, and other factors that could impact your monthly budget.

If you are thinking of buying a property that is much larger, in a more desirable area, or is a newer home compared to the one you are currently renting, you may find that the monthly mortgage payment is higher than what you are paying for rent. In many areas it is common to see rental prices that are higher than the monthly mortgage payment on a similar home.

Forecasting Expenses

Though the mortgage payment may be lower than a rental payment, homeowners must factor in some additional costs they may not have experienced as renters. These can include homeowners insurance (though renters should also protect their possessions with renters insurance coverage), property taxes, and homeowners association dues, as applicable.

Property owners should also have some funds set aside for home maintenance and repairs. Eventually an appliance will need to be replaced, or something will need to be fixed on the home, with the homeowner responsible for the cost. In that moment you might miss being able to call the landlord, remember that you are investing in something you own, and seeing the return on that investment when the property value increases.

For those that would like to own their own home, but are a little wary of taking on those home maintenance responsibilities buying a condo could be a great compromise to consider. With a condo the homeowner owns their individual unit, but the building and common areas are managed by a condo association or homeowners association. Insurance coverage is generally included in the condo association fee, though an additional policy to cover the furnishings and possessions inside the unit may be warranted. An added benefit is that many condo communities have amenities such as pools, gyms, and clubhouses that are less common among single family home communities. Condos can generally be financed with most home loan programs – talk to one of our loan officers to learn more.

Keeping Monthly Expenses Consistent

It is important to remember also that your rent has the potential to increase over time. Most landlords raise the cost of rent by a few percentage points every time the lease is renewed or every few years. When purchasing a home if you choose a fixed mortgage for financing, the monthly mortgage payment (principal and interest) will not increase over the life of the loan. (The escrow portion can increase if the cost of homeowners insurance, property taxes, or other items increase in the future.)

With each mortgage payment you’re directly building equity and gaining ownership of a major asset.

Thinking Beyond Monthly Costs

If you’ve determined that the monthly mortgage payment on a home in your area would be less than you’re currently paying for rent, you might wonder whether it’s time to start looking at real estate listings. A common concern among many first-time home buyers is that while the monthly costs would be manageable, they may not have a large amount saved for a down payment and other costs of buying a home.

Thankfully, there are many home financing options with a low down payment requirement, or even no down payment needed. These can be wonderful solutions for first time homebuyers as they remove that large hurdle of saving thousands of dollars before purchasing a property.

Of course, it’s not only first-time buyers who can benefit from low money down mortgage programs. Repeat buyers who are selling a home and purchasing another may prefer a low down payment instead of using the proceeds from the home they are selling. They might choose to use those funds for other purposes or even keep the first home and use it as an income generating rental property. There are lots of options – our mortgage experts can help you weigh which is a good fit for your scenario, and which will help you reach your financial goals.

Some examples of low down payment loans include:

  • Down payment as low as 3.5% & perfect credit is not required to qualify.
  • VA Mortgage Up to 100% financing for eligible active duty and veterans of the US military.

If you’re still not sure what the best option is, please feel free to get in touch If you would like to learn more about mortgage options and what that might mean for your monthly expenses. Our experts are happy to guide you in selecting the best option for your circumstances and work with you on your mortgage needs.

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.

 

What is your financial situation?


Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?

 

Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?


In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.

 

Content intended only for the use of citylendinginc.com

Written by Alicia Christopher

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