Is Waiting To Purchase A Home Costing Me Money

Dated: July 25 2018

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While there are many benefits to purchasing a home, dozens of individuals are casting the thought aside. They may be worried that purchasing a home will cost too much upfront and push them far into debt. Other individuals may be saving up to pay for the home in cash or to provide more than the recommended 20% down payment. Unfortunately, these good intentions and worries may actually be costing them more money. 

Home-Buying and Renting Statistics

According to the Pew Research Center, more Americans are renting homes than purchasing them. But why is homeownership declining, and do these renters have any regrets? Here’s what the research shows: 

  • 72% of renters said they want to buy a house at some point

  • 65% of renters said they rent because of their circumstances

  • 32% of renters said they rent because they want to

  • 65% of American renters are younger than 35 years old

  • 21% of Americans say a past house buying mistake is keeping them from changing their current living situation

  • The top regret most renters had is choosing to rent a home, rather than purchase a house

Many questions stem from these statistics. But, if these renters can qualify for a house loan, is it smart to wait or should they buy a house now? 

Why Waiting is Costing You Money

The decision to purchase a home is a personal one and only you know your current — and future — financial and employment plans. But, by taking your time to purchase a home, you could be costing yourself more money. Here’s why.

The Current Market

All around the United States, including Northern California, home prices are on the rise and show no signs of slowing down. Several cities in California are seeing some of the greatest price increases. These cities include:

San Francisco – 9.04% increase

San Diego – 7.45% increase

Los Angeles – 7.02% increase

For sellers, this is excellent news as they earn more equity, but for buyers, it is becoming increasingly difficult to purchase a home. Unfortunately, if the home prices continue to increase, purchasing a home will not become an affordable option.

In Sacramento, home prices are the highest they have been since the early 2000s. In Sacramento, the average home price is $357,000 and in Placer County it is approximately $482,000.  This means that to provide the 20% down payment for a home in Placer County, home buyers need approximately $96,400 — an almost impossible sum particularly with the already high living costs in the state. 

Rising Interest Rates

In addition to the increasing home values, mortgages rates are continuing to rise in California and show no signs of slowing down. In fact, some experts don’t expect home interest rates to fall into the 3% range for many years. Unfortunately, this increase in mortgage rates means it becomes even more difficult to qualify and afford a home. This is because you will have to pay more money over the course of the loan to pay for the high interest. This also means you may not qualify for as large of a loan, making it much harder to afford the size and type of house that you desire. 

The rising interest rates can also be challenging for individuals with low credit scores. Your credit score tells lenders if you are a risk. These scores are the combination of several factors including your payment history, debt, how many credit lines you have opened, and more. When you have a high score, it proves that you have strong financial habits. The lenders are more willing to work with you and you can receive lower interest rates.

You Build Significant Equity

As mentioned previously, for homeowners, the spike in home values is a good thing. It allows them to make a significant amount of equity in a very short period of time — something you miss out on greatly when renting a home. Let’s use Sacramento home prices as an example. Within the past year, the trends show Sacramento housing prices have increased approximately 9%. For the average home with a value of $357,000, that means in the past year, these homeowners have gained $32,130 in equity. If the rates continue to increase, in the next three years they will earn up to $96,390. 

You Can Receive Tax Benefits

For many individuals considering a home, the upfront costs can weigh heavily on your mind, causing you to lean toward renting each month. However, not only can you receive significant equity in the home, but you can also receive many tax benefits as well, helping you save even more money. 

Homeowners can deduct both their mortgage interest and property payments from their federal income tax. When deducting your mortgage interest, you can deduct any mortgage interest you paid throughout the year and up to $100,000 of home equity debt. You can also deduct any property taxes on the home. The benefits this provides to each homeowner will vary depending on where they fall on the tax bracket. 

Homeownership is an Investment

When you begin to weigh the pros and cons of renting or purchasing a home, the way you look at purchasing a home is important. Homeownership is an investment, rather than just a place to live. When this investment is done wisely, it can enhance the financial future for your family.  While renting certainly has its benefits, and in some cases, it can save you money each month, you are receiving very little in return and are not building equity like you do when you buy. 

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If you are waiting for the right time to purchase a home, now is the time to begin the process. With the increase in both home values and interest rates, homeownership — particularly for first-time home buyers — is becoming less affordable and more difficult to obtain. Don’t spend money while you wait for the right time. Talk to an experienced real estate agent at Roger’s Real Estate Team and receive the help you need to find your dream home. 

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