Written by: Olivia Forgette
With the fresh start of 2022 upon us, it’s common for renters to be thinking about when their lease is going to end this year, and where exactly they are going to end up when that time arrives. Rent costs notoriously rise year-after-year. This makes this lifestyle not only financially draining, but also lacking in equity gains that you can capitalize on if you stop renting and become a first-time homebuyer.
Look no further for some expert advice on how to stop the endless cycle of renting property and become a first-time homebuyer yourself.
Why is buying beneficial?
There are many layers as to why buying a home is more beneficial for you than renting. The top of that list is financial benefits. If you decide to stop renting and become a first-time homebuyer, it allows you to build your wealth to purchase future homes.
Between August 2020, and August 2021 there was a record 19.2 percent home price appreciation in the United States. This means, if you owned a home during this time, you likely made some decent money off essentially doing nothing other than owning your property versus renting.
Buying also substantially increases your net worth, while renting does not. Owning a home allows you to build valuable assets that are worth more than just a place to call home-sweet-home. Your net worth simply put is the value of all your assets, minus the total of your liabilities. Net worth is essentially what you own, versus what you owe. If you’re in an endless cycle of renting, what you own is likely substantially smaller that that of someone who owns a house.
Another big benefit to buying a home over renting is that you open yourself up to the possibility of living a rent-free and mortgage-free lifestyle one day.
If you own a home and pay off your loan, you will only be paying homeowners insurance fees and property taxes, which is a lesser amount of money in comparison to monthly rental payments.
Don’t believe us? On average in the United states, homeowners insurance costs around $104 per month, or $1,249 per year. The amount you will pay in property taxes each year varies dramatically based on location and home value, but the average American pays is $2,471 per year. This makes for an average of $3,720 a year. A bit cheaper than your annual rent fees, we assume.
Other benefits to buying versus renting include:
- You’re able to customize your property to make a dream living space for you and your family
- It’s more stable and familiar than changing rental properties every year
- You get the chance to get a great deal by buying in the right market and taking the time to fix-up the property yourself
Tired of annual increases?
Becoming a homeowner also helps save you from the regular rise in rent, or the sometimes-stressful sale of your rental property out from under you.
With a mortgage, each year you pay the same amount. Your interest rate is locked in, and there won’t be any annual increases. On average, rent increases with inflation somewhere between 3-and-5 percent. Add that up over the course of your renting lifecycle, and you could be saving some serious money by choosing the owning alternative.
Convinced? Now what do you need to buy?
If you’re officially financially convinced that buying is better than renting (which you should be!), now you’re probably wondering what you need to do in order to buy your first home.
As a first-time homebuyer, you can qualify for many advantages! Being new to the real estate market means you have access to state programs, tax breaks, and federally backed loans. The U.S. Department of Housing and Urban Development (HUD) defines a first-time homebuyer as:
- Someone who has not owned a principal residence in three years
- A single parent who has only owned a home with a former spouse while married
- A displaced homemaker who has only owned with a previous spouse
- Someone who has only previously owned a residence not permanently affixed to a foundation
- An individual who has only owned property that was not in compliance with building codes
If you fall into any of these categories, you can take advantage of programs that can make buying easier for you.
Some things to look at before buying include:
1) Think about your financial health. You will ideally need a debt-to-income ratio of 43 percent. It’s also important to have a deep look at your savings account. In a perfect world, buyers should have emergency savings of about three-to-six months of living expenses.
2) Get pre-approved. Before you start shopping for you dream property, it’s important to get an idea of how much a lender will offer you to purchase your home. Click here to learn more on how to get pre-approved for a mortgage.
3) Consider what you can actually afford. Sometimes a bank will offer you a large sum in your pre-approval. It’s important that you consider you lifestyle, property taxes, and insurance costs to ensure you don’t become “house poor”. If you love to take a big vacation every year, or enjoy luxury shopping, these are things to consider in your lifestyle when deciding how much you want to spend on a house.
4) Hire a real estate agent. Once you’re pre-approved and know how much you want to spend, it’s time to hire a real estate agent so you can have professional guidance during the buying process. If you’re local to northern Illinois or southern Wisconsin, contact Maureen Forgette to get you into your dream property in no time!
The bottom line is that buying is financially extremely beneficial when compared to renting. Becoming a first-time homebuyer can feel like a daunting, scary, and unachievable goal. Know that it doesn’t have to be! There are programs to help you. Plus, a great real estate professional will be there to make each step feel less intense.