Thursday, January 26, 2017

On the Fence About Homeownership? Here’s What You Need to Know

Are you tired of renting? Do you spend your spare hours scanning real estate listings? If so, you’ve got some company. According to the National Association of Realtors, over 35% of new homebuyers in 2015 were Millennials, making them the largest group of buyers for two years running. As the economy continues to recover from the events of 2008, it’s not just Gen X or Boomers buying houses.

Still, the transition from renting to homeownership is a major one, so it’s natural to have some trepidation about taking your first steps away from your lease. To ease your mind, the apartment experts at ABODO have broken down three of the most common myths that keep renters from homeownership — as well as a few things to know, if you decide to make the leap.

MYTH #1: Owning a home is more expensive than renting.
Not necessarily. As demand for rental properties has grown, so have rents. In fact, in 2015 rents nationwide rose 4.6%, the largest increase in almost 10 years. According to a recent study, it’s cheaper to buy a house than rent in 42 states. Down payments might give you sticker shock, but more often than not, a monthly mortgage payment will be comparable to (or less than) rent, and at least you’ll be gaining equity. Plus, mortgage interest payments are tax-deductible. This handy calculator from the New York Times can tell you if homeownership could actually save you money.

MYTH #2: Goodbye, savings.
After a downpayment, and mortgage payments, and furnishings, and repairs, and maintenance, and property taxes… saving money is a lost cause, right? Think again. Every mortgage payment that pays down principal and interest is a kind of “forced savings account.” You have to pay it, so you do. But unlike a rent payment, that money isn’t gone forever. Assuming you don’t default on your loan and go into foreclosure, you’ll see it again, albeit in a different form. Establishing equity in your house is a long-term investment that will also make you eligible for new lines of credit.

MYTH #3: You won’t be able to get a loan.
Yes, the days of subprime lending are over — and for good reason. After what happened from 2007 to 2009, banks are understandably cautious about handing out large loans for new homeowners. But that doesn’t mean it’s impossible to get a loan. In 2014, Fannie Mae and Freddie Mac announced a new initiative, aimed at encouraging first-time homeowners, that backs mortgages with extremely low down payments — as low as 3%. There are conditions, of course: Potential homebuyers must buy private mortgage insurance and have a high credit score (at least 620). But such a low down payment (the standard is 20%!) is a major help for younger homebuyers who might still be paying off student loans.

Ready to go on a house tour? Wonderful. But making the transition from renting to owning entails a lot more than just writing checks and calling friends to help you move. There’s more to consider: from the upfront costs involved to what happens if your dishwasher malfunctions and spews food-flavored water all over your floor. As you start looking for your new home, keep these three things in mind:

1.            Your upfront costs will be higher.
Bid farewell to the security deposit. When you buy a house, there are a few different fees to contend with. The largest one, which poses one of biggest obstacles for hopeful home buyers, is the down payment. The exact amount depends on your mortgage, but expect to pay 10% to 20% of the home’s value. Don’t have that kind of money? There are options to pay much less upfront — sometimes as little as 3% — with private mortgage insurance or a loan through the Federal Housing Administration.

Don’t forget about closing costs, which average about $2,100 on a $200,000 home. These costs cover several necessities: appraisal, land survey, home loan origination, title insurance, home inspection, insurance escrow, and more.
2.            Monthly payments go beyond mortgages.
Your mortgage payment can look pretty similar to your rent check. But since your home is your largest investment, you’ll want to protect it with insurance, leading to another monthly expense. Sure, renters’ insurance was “highly recommended,” but homeowners insurance is necessary to protect your investment, your belongings, and your mortgage. Many lenders require it.

You’ll also want to tuck away money each month for property taxes, which are usually a percentage of the assessed value of the land and the structures on it. These rates are highly localized, but the average household pays just over $2,000. Although property tax is generally billed annually or semiannually, many mortgage lenders require that money is put in escrow monthly for the tax.
3.            You are your own maintenance crew.
Your maintenance budget now must cover more than a package of lightbulbs and batteries for smoke detectors. As an owner, however, plan on spending at least 1% of your home’s value on maintenance projects each year. If unused, this cash will come in handy for larger projects, such as a roof replacement. When you move in (and pretty regularly after that) take inventory of the appliances you have and what kind of shape they’re in. When was your furnace last inspected? Is the water heater an original feature of your 1950s home? If so, put that heater near the top of your list — above, for example, an air conditioner or dishwasher.

Homeownership can seem daunting, but if you know what to expect, it’s a much less stressful transition. And if you’re working with a professional like Anthony Legins, you’ll be out of your apartment and into your new home in no time.