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How to make buy vs. rent housing decision as mortgage rates surge

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Iowa is currently the cheapest state to buy a home, according to Homebuyer.com.

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With mortgage rates rising, more people may be asking themselves an age-old question. whether to rent or buy.

These decisions are particularly pertinent amid bubble-like housing prices, making monthly mortgage payments more difficult to manage and one of the more sticky forms of inflation in the economy. Very high rent that has been proven.

The recent Federal Reserve interest rate hike is not directly related to mortgage rates, but Impact on lending and home pricesAlso, the Fed has yet to finish raising rates this year.

The average 30-year fixed mortgage rate was 6.10% as of Sept. 13, according to Bankrate.com, rising steadily to 6.43% on Tuesday, according to the Mortgage Rate Comparison Service. Last week, we made a recent decision to raise our benchmark interest rate by another three-quarter percentage point.

more Homebuyers are stopping the deal given the environment. Here’s how to weigh the biggest housing decisions you might make in your life.

take a big-picture approach

Corey J. Phillips, a financial adviser to Pittsburgh-based Fort Pitt Capital Group, said he’s been hearing from clients that they’re worried about buying now because interest rates are rising. Told. But he’s only one of the considerations when buying a home.

Although higher than in recent past, the rate is still at the average level of the last 30 years, he said. “Over the last few years, as consumers, we have become accustomed to such low interest rates. Now that is our expectation,” he said.

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Phillips said it would be unwise to try to time the interest rate market. If the buying factor is right for you, it could make sense to buy, even if interest rates are rising.

But before you put your money down, think about what the next few years will bring. Are you interested in putting down roots, or is he more likely to relocate within three to six years?If the latter possibility, Phillips said closing costs and commissions would be a benefit. I said I generally don’t recommend buying now because it’s likely to counteract.

Rent premium and ownership premium

Renting is definitely expensive. An analysis of publicly available data shows that from 1985 to 2020, median rent nationwide rose 149%, while median overall income rose only 35%. data By Realestatewitch.com.

However, housing is also expensive. 0.77% drop from June to JulyThis is the first monthly decline in almost three years, according to Black Knight, a mortgage software, data and analytics company. Prices have softened significantly in recent months compared to historical data. However, the average price of a resale home in August was $389,500, up 7.7% from a year ago.

Carl A. Wagner III, partner and senior wealth adviser at Milford, Pennsylvania-based Biondo Investment Advisors, said prospective buyers should be aware that the premium they are paying on rent is temporary. said that it is necessary to remember “The premium you pay to buy is not a one-time thing, it’s a long-term commitment,” he said.

So, at the very least, don’t force a buying decision if your financial situation provides a good reason to be more cautious.

Determine if you have enough money to pay the down payment, or if it’s better to delay the purchase until you do. Phillips gives examples of clients looking to buy homes ranging from $200,000 to he $275,000. He now has enough savings to pay a 15% down payment. That means he only has to pay for private mortgage insurance for a few years. This is a type of mortgage insurance that lenders require if the buyer doesn’t have his 20% down payment to begin with. He can continue his savings until he finds his dream home, and over time he will approach the 20% level and be able to privately avoid his mortgage insurance.

Moving expenses, other miscellaneous expenses

Moving is expensive, whether it’s a new rental or a newly purchased home.

Potential buyers should set aside enough money not only for moving costs, but also for home maintenance costs (initial and ongoing). These costs are not necessarily bucket drops. According to Moving.com, the average moving cost is $1,250 for a local move and $4,890 for a long distance move.

Additionally, Courtney Klosterman, home insights expert at home insurance company Hippo, said:

Also, in addition to hiring movers and home repairs, homebuyers need to set aside more money to purchase new items and furniture. Additionally, if there is a gap or overlap between moves, the buyer may have to pay double the mortgage or stay in a hotel until the new home is ready for occupancy.

Your income and personal financial security

Potential buyers should consider how their financial situation might change in the near term, says Gregory W., certified financial planner and founder of Lawrence Legacy Group in Estero, Fla. Mr. Lawrence said. Stay home and raise children? Or what would you do if one of you got fired? Can you live on one income? Think about your source of income. Are you safe in a recession? And how much could your future spending be?

Lawrence said, “We are currently submerged because the market has fallen because we didn’t have the money to pay for the house we bought at the peak, were laid off, or just put a lot of money into.

According to Lawrence, if there’s a great buying opportunity but you’re worried about finances, it may make sense to deposit less, even if that means private mortgage insurance. “I wouldn’t invest 20% in a house unless I had enough assets to be sure I wouldn’t lose it,” he said.

Wagner urges first-time homebuyers to wait for what he sees as the bubble destined to burst. He warns people to remember the housing crisis of 2008 and how many people suffered heavy losses on homes they bought at the peak. “I’m afraid we’re in a similar situation where excessive speculation, excessive liquidity and low interest rates have caused this real estate boom,” he said.

“We know, historically, that nothing goes one way forever. If you can wait, I will.”

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