Renting is a fact of life for more than 43 million households. Everyone who has ever rented knows the drill, and most have some stories about renting experiences gone bad: the mid-winter broken window that sticks around until spring, the landlord who asks your roommate on dates every time something needs fixing, the obsessive owner downstairs who could hear a feather hit the carpet (well, maybe I’ve just had an interesting run of it myself . . .) Most people would much rather own a home than rent, and yet millions of people find themselves cutting checks to someone every month to keep a roof above their head.
In most cases, people believe in their heart of hearts that renting is the best choice for their lifestyle. In many cases, they’re right—especially young people who are not ready for the responsibility and investment associated with owning a home. Many more simply feel trapped, caught up by a series of anxieties and excuses that keep them from taking the plunge and buying a property. This is not only unfortunate, it’s a bad investment. With rent prices going up at an alarming rate across the country and home values still below market in many places, there is no better time to be looking to lock down a new house or condominium. Nationwide, buying a home is more cost effective than renting, and only a couple choice metros are so out priced that renting is a better choice according to Trulia.
And this is before you even take into consideration one of the most basic truths about home ownership: each mortgage payment goes back into your pocket, both figuratively as you approach the end of the mortgage term and more concretely as you grow equity by paying down your principal. Each check you give to your landlord goes to your landlord and no further.
The incentives are there, so why are people hesitant to leave the rental nest? Here are four major reasons:
Savings. If you don’t have a lot of money saved up for a down payment, buying a home can feel like an impossibility. Twenty percent down payment is traditionally the standard, which even on a fairly inexpensive home or condo can still run tens-of-thousands of dollars. There are however ways around paying this amount from FHA insured loans that only require 3.5 percent down to local down payment assistance programs that can help pay part or all of your down payment. In the mean time, you can make a couple small changes at home that will help you kickstart your savings quickly, putting you on the road to a buying a home.
Credit. If your credit score is low, it does make it more difficult to secure a mortgage loan. Credit isn’t something you can’t improve though, and by paying down credit card and car loan debt consistently you can begin to improve your standing fairly quickly. You should also be aware of your rights with regards to your credit reporting, and what comes up when banks search you. Millions of Americans have mistakes on their credit reports that they don’t know about or think they can’t fix. Understanding what your options are with regards to improving your credit will be the first step along the way. The second step? Looking into federally-backed loan programs a la FHA that approve borrowers with credit scores as low as 580 for loans.
Debt. Americans—especially younger generations—are saddled with an incredible amount of debt. Thanks to the ever-increasing cost of education, more people leave college with thousands of dollars they need to pay back. According to New America, the average Millennial (people ages approx. 18-34) leaves college with nearly $30 thousand in debt. Paying back student loans makes it more difficult to save money, which makes it more difficult to grow a down payment on a loan. However, as home prices and rents increase at a rate higher than wages are growing in many areas, and with many aspiring home buyers still decades out from paying off their debt entirely, time is of the essence. Paying down high interest debt is an important part of financial stability, and one great way to free up additional revenue to pay down debt is to decrease your cost of living. Including, of course, housing. You see where I’m going with this, right?
Fear. Buying a home is a major commitment, and a lot of people feel like it’s a task they aren’t ready to undertake. Fair enough, I get that! Monumental decisions are tough to make and fear of the unknown is a natural response to strapping in for major life changes. But when you let fear dictate the important financial decisions you make, marvelous opportunities will inevitably be missed. Be smart about your purchase and don’t go in without doing due diligence in the local housing markets, buying practices, and loan terms. This will help make you less fearful of the big decision you’re on the way to making. As the Buddha once said “even death is not to be feared by one who has lived wisely.”
Or, perhaps something less dramatic. How about: “I think fearless is having fears but jumping anyways” – Taylor Swift.
So there it is. While not everyone is ready to buy a home, you can start making the strides towards preparedness today that will lead to your eventual success. For people who want to get a jump on buying a home, but aren’t quite there, rent to own homes offer a great opportunity to line up the home of your dreams now and lock down the deal later, when you have everything ready to go.