Question: Is now a good time to buy a house, or should I continue to rent until the economy improves?
Answer: Mortgage interest rates are low and rent is rising. If you have been renting your home for a while, it may be time to leap to homeownership. There are many homeowner benefits, but before you spring into action, there are also many factors to consider.
“We are fighting for homes. Houses are selling with multiple offers over the asking price. It’s the lowest inventory I’ve seen in 15 years of doing this,” said Joelle Kahn, realtor with Tierra Antigua Realty, a Rosie-certified partner.
BUYING
Buying Pros
- Tax advantages — Some of the costs of homeownership are tax-deductible. While you are paying off the mortgage, the mortgage interest will count as a deduction on your tax return.
- Make money on your investment — Renting is not an investment. Over time, your home will likely increase in value. That equity is money in your pocket.
- Remodel and renovate — You don’t need permission to paint the walls Pepto Bismol pink or pull up the carpet to reveal hardwood floors. This is your house (well, technically the lender’s until it’s paid off) and you can do what you want, within city code and HOA guidelines, of course.
- Privacy, please — If you buy a single-family home, you should expect more privacy.
“I’ve never seen rates this low,” said Kahn. “With how cheap money is now, and depending on your credit, buyers have a lot of buying power. You could probably have a mortgage at less than your rent.”
Buying Cons
- Increased expenses — One of the biggest costs of homeownership is the monthly mortgage payment, which includes the loan’s principal and interest. Your payments can go up or down if your loan is variable-rate or your property taxes or homeowners insurance premiums change.
Homeowners insurance costs much more than renter’s insurance — In most cases, the insurance for the actual structure will be included in the mortgage. But you will need a policy for the contents and liability. Plus, there are the higher utility bills, maintenance costs, and possible flood policy and HOA fees.
- Down payment — The days of zero down are over. Expect to pay 3% to 20% of the home’s purchase price off the bat. If you put less than 20% down, your lender will likely require you to purchase private mortgage insurance, which increases the mortgage payment.
- Can’t just get up and go — What if you suddenly need to relocate for a job or family matter? You can’t just give a month’s notice to the landlord and move out. Are you going to sell the house or rent it out? Either way, it’s going to take time to coordinate.
- Maintenance — If the toilet clogs or a pipe bursts, grab the plunger and towels. As a homeowner, it’s up to you to see that it gets fixed, whether you do it or you hire someone.
“It’s a seller’s market,” said Kahn. “Tucson usually has four to six months of inventory on the market. We are currently sitting on less than one month of inventory. Mix that with rates at 3% and under and you have the demand but not the supply.”
RENTING
Renting Pros
- Not tied to a mortgage — Again, if you need to relocate, in most cases, all you need to do is provide a month’s notice, pack up and leave.
- Know your costs — When you rent, you know exactly how much you’re going to spend on housing each month.
- Maintenance is taken care of for you — Call to the landlord. Broken appliances, leaky faucets, and pest control are generally not your responsibility to fix or pay for, unless you caused the problem.
Renting Cons
- Rent rates increase. Even if you take advantage of the “three-month free rent” promotion, inflation, competition among properties, and rising property values will cause your rent to increase each year. Do you want to move every year, chasing the best deal?
- The property can be sold — The owner can sell the property at any time, leaving you in a lurch.
- Zero financial incentives — There are no tax deductions, equity to earn, or rising property value. Once you pay the rent, that money is gone. It is not working for you.
- It’s not yours to live as you please — You have little say in what you can do in your rental. Some landlords forbid pets, while others limit the species, size, and number while charging as high as $500 per pet deposit. You may not even be allowed to nail anything to the wall. There can be a lot of limitations in a rental.
OTHER CONSIDERATIONS
When the foreclosure eviction and moratorium extension end, Kahn expects the floodgates to open, thus causing a ripple effect. Homeowners and renters who are behind, will be fighting to stay in their homes, while landlords and lenders expect to be paid. “I think it will initially balance it out. Depending on how many people are affected and when that ends will determine the swing in the market.”
Remember, homeownership isn’t just about money. It is about the lifestyle you want and what makes the most sense for your situation.
If you decide homeownership is for you, there is an important first step you must take. Before you go house hunting, get pre-qualified for a mortgage, unless you are paying all-cash. Otherwise, it is pointless to look if you don’t know what you can afford.
Buying a house is a long-term commitment. Carefully consider these factors and your options.
