Buy for Less than You Are Paying in Rent
In today’s “Ask the Agent” segment, we are going to discuss how to own your home for cheaper than renting. A lot of people have been asking about that. In a recent survey that came out from Trulia, they compared the cost of owning versus the cost of renting. They found it’s good news for people in our area looking to buy that are now renting. In the D.C. region as a whole, it’s about 33% cheaper to own than to rent. Now, if you’re living in the city itself of D.C. and not the surrounding areas, it’s actually 59% cheaper to own. This is a huge incentive to own for everyone in our area, considerably more so if you’re in Washington D.C. proper.
You are probably wondering “Why is it cheaper to own right now, than renting in our area?”
The first reason is that interest rates are near-historic lows. They’re not quite the cheapest they’ve ever been, that was a few years ago, but they’re still hovering close to those historic lows, right around 4% for a 30-year money, less for ARMS. Depending on your situation, there a lot of great mortgages out there with low rates and down payments.
A lot of the typical renters and buyers in the D.C. area are in some of the higher income tax brackets. If you are looking to itemize for tax savings, you get to take advantage of some big deductions, as the mortgage interest is deductible.
When you’re making house payments, typically the way loans are structured, a share of the payment is going towards interest the first few years – which is all tax-deductible. Real estate taxes are tax-deductible as well. You might be paying $2,000, even $3,000 or more, in your monthly mortgage checks but in reality, that might be equivalent to a $1,500 or $2,500 payment when you factor in your tax deductions.
The reason renting is so expensive here is because supply is typically low. Demand is high because our unemployment is great. Rental prices have continued to increase 2%, 3%, 4% or more a year. If you’re renting, you can expect your rent to go up every year. If you buy, you’re locking in the price, the only things that may change are your real estate taxes and perhaps condo fee or HOA fees can go up every year. But, don’t worry, that’s a very small portion of the total payment. The price you pay for your mortgage is locked in.
When you’re renting, you can expect the payment to go up a lot compared to when you own. If you are finding yourself in that debate, “Do I rent? Do I own?” run the numbers yourself, or talk to us, or an accountant and get some good advice there. After doing this, 9 out of 10 people will find that it is cheaper for them to own than to rent.
Buying Your First Home
How do you do it? Well, the first step is talk to a good real estate agent, a good lender. Figure out what types of loans you qualify for, what kind of down payments you might need. There are a ton of options out there for first-time home buyers where you may not need a big down payment.
For example, if you’re married to a veteran or were a veteran, you can get VA financing for 0% down. There are also low down-payment options available through FHA and other programs where you might be able to get into a great home for only 3.5% down and have an overall payment that is cheaper than what your rent is.
And there’s also some specific to this area first-time home buyer programs, where you can get the home of your dreams for 0% down and no money up-front. And you’re actually saving money over time and building up equity, while those around you that are renting are continuing to pay more and more and losing out on the chance to build up equity.
Sign up for one of our home buyer classes and get $1,500 off your home purchase and a 12-month buy-back guarantee.
I know we covered a lot and there’s a lot more to this subject. If you’ve got any questions, I’d love to help you. Contact us or sign up for one of our home-buyer seminars. We do several of them a month.
As always, if you have other questions for us to answer, we’d love to get to it in our next “Ask the Agent” segment.