Renting vs Buying: What's the real skinny???

The dream of owning a home is part of our American culture and a fantastic way to build wealth. However, when deciding which is better for you, timing plays a big role. If you think you will be in one location for less than 2 years, renting might be the best thing for you. However, if you plan to be in the same place longer than 2 years, purchasing can certainly be the way to go. Many of us start out in rentals in the early years of adulthood. We quickly learn that rent isn't cheap and owning our home allows us the ability to make it our own. So how do you know when you should buy? 

If you know you plan on being in the same location for at least 2 years, you have a solid job, good credit scores of at least 640+ (some lenders will allow lower scores), have saved enough to make at least a 3.5% down payment and have enough to cover the upfront costs, such as earnest money, a home inspection, appraisal fee and option fee, you can probably move forward to purchase, especially if your realtor negotiates a great deal and can get the seller to help cover your closing costs. 

Let me give you a little scenario*...

Let's use an average sales price around the Houston area of $250,000. Earnest money is typically 1% so that's $2500. This will be due to the title company when you find the house you love and the contract is accepted. Then you will give the seller a $200 option fee so you can do your inspections and if you want to terminate the contract for any reason within that option window, you can. Next up is the home inspection fee of $500 to the home inspector. He lets you know what you want the seller to address in repairs. Finally, once all that is complete and you're sure you want to move forward with the home, your lender orders the appraisal which is about $500.

So let's total that up...$2500+$200+$500+$500 = $3700 of upfront costs. About $2700 of that upfront cost IS A CREDIT to you at closing. If your down payment is 3.5%, that would be $8750. With your $2700 credit, that leaves $6050. If your realtor can negotiate your closing costs or you get an awesome mortgage deal with Keller Mortgage, or another preferred lender, you could end up buying a house of your own for about what it would likely cost you to rent again.   

Let's break down the rent for a similar home....Monthly rent is likely $2400. The landlord will also want a $2400 deposit due when you sign the lease. They will also want you to pay application fees for each adult 18 or over which is likely around $100/couple. Then you have your pet deposits, which are running about $350-$500/per pet. So that total is about $5600 if you have a couple of pets and two adults going on the lease. This is for a one year lease and you could be doing this all over again a year from now if the landlord decides to sell the house. 

And the crazy thing is that the mortgage for the home you could buy would likely be a lot less than paying rent. At the end of three years, you would have spent $86,400 on rent. That money would be gone. If you were to purchase that home, you would have invested that money, spent less annually, and would be building equity as the market values improve. If we just use a yearly return of 4% on investment, at 3 years that is $30,000 plus your $20,000 that you've paid down the mortgage and you're right side up $50,000. So you did not throw away all that money. In fact, you gained a good deal. 

If you are on the fence about renting, a quick call to a lender and your realtor and you could determine if this is the right time for you to buy. The market is going to start heating up. If you have questions about if you should buy, sell, rent, or invest, give me a call. I would love to chat!

**this scenario is for explanation purposes only

April 2020 News Update

Stay At Home...

This is the time of year that our children typically get antsy and so do we. Texas spring weather shows up and it's warm and beautiful outside. None of us want to be cooped up in our offices or sitting behind a school desk. Suddenly we have this time to be at home and work remotely, but it isn't quite so ideal. 

In 2015 the Oil and Gas market took a tremendous hit. Those employed in the deep water drilling side of the industry were unexpectedly out of work. And it wasn't for a brief period of time. In fact, many of these people, thousands of them, did not return to Oil and Gas at all. My husband is one of them. He was out of work for 16 months and then when he went back to work, it was at a third of his previous income. We learned a lot of hard lessons in that tough time. Below are the ones I feel are most valuable if you are concerned about your finances. 

First, cut all extra expenses. Immediately. Do not wait until next month or even next week. Do it today. Talk to all your financial institutions, credit card companies, insurance companies, etc. and request a better interest rate or raising deductibles to reduce premiums. Cut all small costs. They add up. If you have a good deal of equity in your home, you could open a home equity line of credit, just for the purpose of having access to more liquid cash in the event you need it. But this will need to be paid back, so if you take a draw from it, you will have a new payment. Take an inventory of all your assets and decide what you absolutely need. If you have an extra car, jet skis, boat, etc. this might be the time to part with those things and save the money in case you need it later. 

If job loss means you cannot pay your mortgage you need to know the difference between forbearance and loan modification. Forbearance means the mortgage company will allow you to skip a certain number of payments. However, those skipped payments will be due all at once along with the current month's mortgage. Some mortgage companies will allow for smaller sums to be added to the monthly note. Loan modification means the lender has agreed to allow you to add mortgage payments to the back end of your loan. It is a modification to your current loan. Be careful with these two. Also, make sure that if you are not sure you can make your payment, you CALL your mortgage company right away. See what they can do to help you. It may be better to sell the home than do these other things. This is a process of decisions to be made. However, selling your home is better than foreclosure! If you are not sure what to do, call me so we can talk it through. 

In all the uncertainty know this: YOU ARE NOT ALONE. We will come through this together. After Harvey, we rolled up our sleeves and worked together to help each other. We shared our clothes, our food, our furnishings, even our homes to help our neighbors. Texans are generous and we will get through this together! 

If you have more questions about tightening your financial belt or anything related to real estate, please feel free to reach out to me. I would love to hear from you. 

Stay healthy!