If I could give just one piece of financial advice, it would be this: Try to buy a home as soon as you can. Why? Because it is one of the smartest financial moves you can make. Owning and having control over your home can have a positive, long-term impact on your financial and personal stability. Consider these factors:
There is a strong correlation between personal wealth and home ownership
According to a 2015 report by the U.S. Census Bureau, “Wealth inequality between homeowners and renters is striking: Homeowners’ median net worth is 80 times larger than renters’ median net worth.” Over time, homeowners generally earn equity, which is a passive way of increasing your assets. Yes, there is some financial risk in home ownership, but is outweighed by the potential rewards. By contrast, the financial risks of renting are negligible, but the financial rewards are nonexistent.
You have to pay to live somewhere
Most of us have to pay to live somewhere. For me, it all boils down to this: Do you want to pay your own mortgage, or your landlord’s? The money homeowners pay toward a mortgage and home improvements goes into their own investment, unlike rent. Have you ever spent time painting and fixing up the home you rent, only to find you need to move when the rent is increased? Or, have you resisted making a place feel like home because you never know how long you’ll rent there? Owning a home involves financial commitment, but it also provides freedom: freedom to create a comfortable home. Freedom to know you have a secure place to live. Freedom to set down roots in a community. Freedom to plan a future.
You gain financial stability and control
When you have a 30-year fixed rate mortgage, you know how much you will pay every month for the next 30 years. When you pay rent, you cede that control to the property owner. Rental rates fluctuate. Every time you want or need to move, you have to deal with security deposits, first/last month’s rent payments, and moving expenses. And, you gain nothing financially when you move. One issue that the pandemic has raised for all of us is a need for safety in our living and work spaces (which are often the same, at this point). The ability to choose your live/work space, and the people you share it with, is key to your physical and mental health right now.
You have an opportunity to buy at historically-low interest rates
The idea of buying a property with a 30-year fixed interest rate of 2.5% (!), as offered this week by a local bank, should excite even the most ambivalent buyer. A rate this low gives you much more buying power. Here is an example of how significant the difference is. If you look back at the average fixed interest rate of 6% a few years ago, for example, your purchase of a $500,000 property with a 80% mortgage ($400,000) had a monthly payment of $2,398. The same size mortgage at 2.5% interest would be $1,580. With rates so low, it is worth revisiting any of the free rent v. buy calculators you can find online. If the interest rates were 4% the last time you crunched the numbers, I encourage you to crunch again.
There are opportunities for people with low downpayments or other obstacles
I realize the lowest mortgage rates are often for people who can put down 20%. And 20% is a lot of money, given how high home prices have risen. But people with small downpayments can still buy property through a number of special loan programs. In our state, the Mass Housing program (https://www.masshousing.com) offers excellent loan opportunities for people of low to high-middle income with good credit who have very low downpayments.
Other options for people with low downpayments and less optimal credit include FHA and VA loans. Many local banks and credit unions offer special rates for first-time homebuyers as well. Don’t be afraid to get creative: groups of individuals can band together to qualify for a purchase, too (see special virtual classes we offer at TTringo.com). For decades, people with fewer assets have felt excluded from the possibility of owning a home. Please research some of these resources before assuming you can’t reach this goal. For many, a low credit rating is an issue. There are ways to clean up your credit and get back on track, and several organizations can help you do just that.
Home ownership isn’t for everyone
Although I strongly urge people to consider buying, I recognize that some folks simply do not want to own a home. But if it is something you think you want to do at some point, this is a good time to start exploring options.
Thalia Tringo is the Owner and Broker of Thalia Tringo & Associates Real Estate, an independent agency based in Davis Square.
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