“Is Now a Good Time to Buy?” I get asked this question on a regular basis. The easy answer is: YES!
To most people this is a question about timing. To me it is a question about Renting vs. Buying because if you aren’t buying what are you doing? Probably renting.
When you rent you are throwing money out the window each month. You are exchanging your hard earned dollars for time in someone else’s property. Once the time has elapsed your money has been spent and it is gone.
When you buy your money is going to pay for your own home. Over time you can pay that property off which is equity build up. You can experience appreciation, which is the property going up in value. If you have to move you can rent the property out and have someone else make your payment for you and maybe even put some money in your pocket each month. You may have tax deductions for interest paid.
“But I don’t have good credit” It’s a misconception that your credit is not good enough or you don’t make enough money to buy but you do to rent. Austin’s rental occupancy rate stays in the 90% range. With the high occupancy Landlords expect good credit and income from their tenants.
“It’s too expensive to buy.” As of this writing the average house rental in Austin is right around $1500.00 per month. That same $1500.00 per month can get you approximately a $200,000 house inclusive of taxes and insurance. (This varies depending on current interest rates, taxes and insurance).
“I don’t have enough money to buy.” In order to rent a house, you have to pay First Months Rent, Security Deposit (usually equal to one months rent) and Pet Deposits. And you have to pay that before you move in! Some loan programs are Low or NO Down payment programs. The most popular and readily available program is an FHA loan that requires about 3.5%. In addition your first mortgage payment is often not paid for 30-45 days after move in. So you see you can often buy for about what it would cost you to get into a rental. If you still don’t have enough there are often down payment assistance programs available or a friend or family member can “gift” you the money to buy.
“I want to save to make a large down payment.” In theory this is an admirable goal. However, in practice it often doesn’t add up. The first really big plateau is if you put 20% down. This can save you the expense of mortgage insurance. The average person buys a house that is 2-3 times their family income. Let’s go back to the $200,000 house used above. You would have to save $40,000.00 while still paying everything you do now and paying to rent where you are. If your rent is the above $1500.00/ month then you will be putting $18,000.00 towards rent to save for a down payment in the first year. This is possible for some people and that’s great. What many people don’t take into consideration is the market may out pace them. Austin averages about 8% appreciation over the last almost 20 years. That’s average, so sometimes it is more, and sometimes it is less. You may have seen how fast prices are going up in your own neighborhood. So after one year, you may have saved $40,000.00 cash but you spent $18,000.00 on rent and the cost of the home you want to buy may have gone up $16,000.00. So you would have been better off scraping together, or getting a gift for the 3.5% or approximately $7000.00 and buying immediately. That year’s worth of rent would have gone toward your mortgage and you would have gotten the house for $16,000 less.
“When is it NOT good to buy?”
There are very few situations where it is better to rent than buy. One of those might be if you are getting a divorce or have some other legal situation happening. I’m not an attorney so I can’t tell you if that’s the case for you. However if you are in one of those situations your attorney should be letting you know.
Another reason is if you are in a declining value market. However even THEN your value would need to be declining by at least 1% a month because that’s approximately what you would be throwing out the window on rent. In the Austin/ Central Texas area we just haven’t seen big drops that should keep someone from buying. Fortunately we have not been hit by the down turn in the housing market like many other parts of the country.
Another reason is we will be moving again in 2 years. Many people are on the “relocation circuit” with their employer. However even then you have to look closely. If you don’t know how long you are going to be here or if you expect to be here only 2 years, wouldn’t it be good to take advantage of low interest rates and down payments available to you as an “owner occupant” to acquire a property that could become a rental when you move? Or at least understand that if you buy the property could go up in value in the time you own it. However if you rent you definitely aren’t getting any kind of return.
Bottom Line:
In almost all situations you should want to become a homeowner as soon as possible. If you would like to know how to make that happen for you, call or email me today to create your own plan. 512-658-0890