Pros and cons of renting vs. buying a home

 

We have been talking to a young couple about whether they should rent now because of their particular situation, or whether they should just go ahead and buy. There are certainly many things to consider, and we think this article from Zillow will be helpful. Let us know what you think.

At some point in your life, you will ask yourself the question, “Is it better to rent or to buy?” and the answer is almost always: “It depends on the state of housing and your circumstances.”

After 2008, when the U.S. economy bottomed out and the housing bubble burst, the standard belief that it’s always better to own, rather than rent, was turned on its head. When home values plummeted and many people found they were upside-down in their mortgages (owed more than the home was worth), the American dream of owning was shattered and renting was suddenly the desired living style.

That’s why the “Rent vs. Buy” question requires people to examine all the elements of the decision, since where we live is an emotional decision as well as an economic one. Here’s one way to break down the issues:

Pros of Renting

• Lower cost upfront – As a renter, you will be required to pay first and last month’s rent and perhaps a security deposit for a pet. If you buy, you will be required to pay a hefty down payment, plus costs for the home inspection, closing costs and other potential items such as a survey and sewer scope. It’s a difference of a few thousand dollars if you rent compared with tens or even hundreds of thousands of dollars if you buy.    Freedom and flexibility – If you are new to the area, you can rent and use this time to check out neighborhoods to see where you might possibly want to buy. By renting you can test an area without committing to it.

• Invest money elsewhere – You can take money that would normally be spent on a down payment and house costs and invest in the stock market or other investment opportunities that could get a better return on value, depending on location.

• Uncertainty in your career -- If you think you might need to move in the near future, or are mulling job changes where you could be relocated elsewhere in the country, renting affords the freedom to come and go as needed.

• Uncertainty in income – If you expect a pay hike or pay cut in the near future, that can change your borrowing ability as well as impact your ability to pay a mortgage.

• Time to establish credit – Got bad credit? By creating a history of on-time rental payments, it can help you build good credit that you would need to qualify for a mortgage.

• No maintenance – When the pipe leaks under the sink, you don't head to your nearest hardware store, you head for the telephone and call the landlord.

• Incidental expenses – Occasionally, the landlord might pick up costs for utilities such as water, sewer, garbage, and in some cases heat and hot water as well.

But there are downsides, too:

• You may have no control over the fluctuation of your rent
• You might be limited in decorating the home or apartment.
• You won’t build equity in your home.
• You are subject to the landlord’s decisions.

Pros of Buying

• Build equity – When you pay rent, you don't own anything. When you pay a mortgage, you increase your degree of ownership in your home with every payment. Also, you can borrow against your ownership (or equity) in the home to pay for major purchases and you can refinance your home at favorable rates to help fund major purchases.
  
• Tax deductions – You can deduct mortgage interest as well as your property taxes. Uncle Sam doesn't give renters this bonus. Not only that, but if you meet certain requirements the IRS won't apply a "capital gains" tax on your profits from the sale of your home. In addition, those who work from home may be eligible to take deductions for their home office and portions of utilities.
  
• Creative control – You like dozens of pictures on the wall? Well, hammer away -- they are your walls now. Like the color mango? Go ahead and paint. Wish you had another room? Go ahead and add one.
  
• Maintenance choices – If you own a home, you can decide how to approach maintenance, either doing it yourself or picking your own contractor. If you live in a rental, you are at the mercy of the landlord when repairs are made and how.
  
• Pride of ownership – It might not make sense for everyone, but having a home you own is still the ultimate American Dream.

While a home can be a good investment – and let's face it, you have to live somewhere – many financial experts caution against purchasing a home simply as an investment. Also, keep in mind that the dynamics of real estate markets across the U.S. vary greatly. This reality requires each consumer to be fairly sophisticated not only in terms of their own finances, but about all the data for the market in which they are looking.

 

Thanks, Zillow, for this insightful article.

Top 5 Reasons for Buying



Real Estate Prices Going Up - Infographic

It’s all about recovery, and it appears our area is well on the way. If you’re buying in one of these areas there are challenges. If your selling in one of these areas there are different challenges. We can guide you through your challenging real estate transaction.

 

 

Pending Home Sales Give a Peek at Spring

This week’s Intero Insider has Gino bringing us a Spring forecast.

 

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Pending home sales – an indicator of how the market will fare in a few months – tell us today that there’s plenty of momentum going into spring this year.

In a widely distributed report from the National Association of Realtors, pending home sales rose in January, and have improved on an annual basis for 21 months.

NAR’s Pending Home Sales Index tracks contract signings, not closings – making it a fair indicator of number of sales coming down the pike. The index increased 4.5% to 105.9 in January from 101.3 in December and 9.5% from the same month a year ago when it was 96.7.

The index was the highest in January since April 2010, just before the deadline for the federal home buyer tax credit when it hit 110.9.

Also, California released a pending sales index last week, showing pending sales climbed 23% to 101.4 in January from the previous month, according to the California Association of Realtors.
It’s safe to say that the spring buying season will be hot in many markets this year.

In another bit of news, along with sales, asking prices seem to be following. This past week, asking prices of homes for sale that appear on Trulia were up in 90 of the 100 largest U.S. metros in February.

Roughly 4.5 million for-sale and for-rent properties were listed on Trulia through February 28. Asking prices for those homes were up 7% from a year ago, and grew at a seasonally adjusted rate of 1.4% from January to February – the biggest month-over-month gain since the housing downturn began.

Spring historically is one of the hottest periods of the year for home sales. In 2013, we’re gearing up to see one of the most active spring seasons since the recession hit.

This is great news for sellers. For buyers, it could mean a lot more competition in the market – especially for those markets that still struggle with low inventory. My advice is to be prepared with financing so you can move fast when the right home comes along, and be persistent.

Happy spring!

The Time to Buy is NOW!

 

 

A Land Rush Is On

By Gino Blefari, President & CEO, Intero Real Estate Services, Inc.

Some big money is walking back into real estate this year in the form of land sales, new housing developments and home builder IPOs.

CNN Money reports that:

“Hedge funds and private equity firms have been rushing in to buy up companies and assets in every part of the housing supply chain, including undeveloped land, homebuilders, foreclosed homes, and building parts manufacturers.

Some interesting developments are laid out in the article. Hedge fund Paulson & Co is making a huge bet on land, buying up land in California, Arizona and Nevada – enough to build 25,000 homes. Blackstone Group last year bought 17,000 single-family homes that had been through foreclosure and has plans to continue these purchases in 2013.

Several home builder IPOs are expected this year, as we discussed here before. Tri Pointe Homes, which builds homes in California and Colorado, raised $232 million through its IPO last week, marking the first public offering by a home builder in nearly a decade.

And another sign of increasing investor appetite is in the price of home builder stock, which has been climbing lately. Pulte Group, KB Home and Lennar – three of the nation’s largest home builders – all have had shares trading at 52-week highs.

The window of opportunity in housing has clearly opened for investors. But it won’t be open for long. As more money rushes in, the chances of getting rock-bottom prices become scarcer.
All of this means two things: The housing market is picking up and investors know it. And we can expect a lot more housing inventory coming down the pike in years to come.

Even if you’re not in the market for land or a new home, these things will likely impact you in some way by impacting the entire sector. When investors see a market healthy enough to jump in, then it’s generally a good sign. For buyers, this means more supply to keep up with demand. For sellers, it means an overall stronger market that will pick up in value.

If you are looking to pick up some land this year, then you better get to it.

Thanks for a Great Open House!

Just wanted to publicly thank all the people who came out to our Open House this week-end. We were open both Saturday and Sunday and were very busy. On Saturday we had 33 groups visit on their own, and 10 agents who brought clients. On Sunday we had 20 groups and 6 agents with clients. That’s a lot of exposure for the property. Enjoyed talking to everyone who came, and a great big thanks to our Sellers who had their house in tip-top showing condition.
We are going to hold the house open again on Saturday, February 2nd. We’ll be there from 1:00 to 4:00. After that we will be looking at offers on Monday, February 4th. Hope you get a chance to see this great house.

Short Sale Soundoff: Fannie, Freddie change Requirements for Short Sales

Fannie Mae and Freddie Mac announced changes to their servicing requirements for short sales. Please be aware of the following key changes for all parties involved in a short sale. These changes apply to all Fannie Mae and Freddie Mac short sales, with an offer and without an offer.

Title Transfer requirement change:

• The buyer is prohibited from selling the property for any sales price for a period of 30 days from the date of the deed.
• After a 30 day period, and until 90 days from the date of the deed, the buyer is further prohibited from selling the property for a sales price greater than 120 percent of the short sale price.

Note: The above restrictions will run with the land and are not personal to the grantee.

Relocation Assistance:

• The borrower may be entitled to an incentive payment of $3,000 from Fannie Mae / Freddie Mac to assist with relocation expenses following successful completion of a short sale unless:
• The borrower is required to contribute funds or execute a promissory note.
• The borrower has Permanent Change of Station (PCS) orders and receives a Dislocation Allowance (DLA) or other government relocation assistance.
• The servicer has knowledge that the borrower is receiving relocation assistance from another source other than the servicer.

Note: If the borrower receives relocation assistance from a source other than Fannie Mae, Freddie Mac, or the servicer, the difference in the relocation assistance amount up to the $3,000 incentive maximum may be provided. If the borrower will receive relocation assistance from a source other than Fannie Mae, Freddie Mac, or the servicer and the amount is equal to or greater than $3,000, no relocation incentive will be provided.

Things to Avoid while going through the Real Estate Loan Process

We’re often asked by my clients what are the “top things buyers should not do during the loan process.” Linda Hulberg at Western Bancorp put together this article with some of the most common mistakes made. Thanks, Linda, for those great words of acvice!

Here’s what Linda has to say:

Don’t go shopping for a car. If you must visit the showroom, at least don’t give anyone your social security number. This enables the dealer to check your credit. Each credit inquiry lowers your credit score even if you do not buy a car. Lenders are increasingly using credit scores to assist in mortgage credit decisions and to price an individual’s loan. High credit scores are good. Low scores aren’t.
Don’t respond in the affirmative to “you are pre-approved for a credit card” mailings. A credit inquiry will result with the same impact as above.
Don’t incur ANY new debt. This increases your debt-to-income ratio, reducing the amount you can borrow.
Don’t file for divorce. This is not advice from Dear Abby. Once you file for divorce, most lenders will not make a mortgage loan until the final decree, setting forth settlement terms, is recorded.
Don’t move money designated for down payment from one account to another. If you do, keep a detailed paper trail. Lenders may request it.
Don’t fail to keep records of any stock liquidation for down payment. Same reasoning as above.
Don’t change the source of your down payment. If your loan application states down payment is from sale of stock, do not simply deliver a cashier’s check into escrow from your bank account. Any change in source of down payment may require the loan to be underwritten again.
Don’t leave town without telling your loan agent and leaving a contact number. You may be needed for a decision or to provide additional documentation. And of course you will need to be available to sign loan documents.
Don’t quit or change your job. Lenders typically call your employer just before the loan records to verify you’re still there. If your employer says you are no longer there, the lender will stop the loan from recording.
Don’t forget to make the payments on any of your present loans or credit cards. This is obvious, but once in a while a buyer forgets, putting the loan (and escrow close) in jeopardy.
Don’t fail to inform your loan agent of any changes to the transaction. Last minute changes such as holdbacks, seller credits or termite work can create havoc with closing dates.
All is not lost if a buyer does a “don’t.” We can minimize or eliminate permanent damage to the transaction, even though delays and stress can occur.

Real Estate Is This Summer's Biggest Blockbuster for Buyers

Summer is almost here – typically a busy season for home sales. But, what about this year? Will high gas prices and the rising cost of just about everything else from inflation dampen a typically active time of year in real estate? We're on shaky ground, but could there be a better market for buyers? I don't think so. Let's look at what we know...

Tax Day

Today, April 15th, is tax filing day. (In case you needed me to remind you!)

You're not thinking about buying or selling a house today. Neither are we.

We're thinking about taxes.

Here's the link you will need.

We've been there already.

Let's talk later...