There's a common assumption that renting a home is a more affordable option than buying one. However, according to a new report from Realtor.com, purchasing a “starter” home was more affordable than renting in 26 of the 50 largest metro areas, even with current high housing prices. And among renters, a Zillow report says that 45% of renters surveyed said they regret renting rather than buying, compared to only 8% of home buyers who regret buying instead of renting. And it's no wonder, according to a March 28, 2022 Apartment List National Rent Report, the median apartment rent in the U.S. rose 17.1% year-over-year nationally.
So why aren't more renters buying? Here are a few of the home-buying challenges renters are facing in 2022:
- Record high median home prices. As of February 2022, the median single-family home sold for a record $363,800, up 15.46% from a year ago and up 33.35% from February 2020.
- Low inventory. Home prices are increasing because of the low inventory of homes for sale. According to a Realtor.com market summary, the inventory of active listings in 2022 was down 62.3% compared to 2020 at the onset of the COVID-19 pandemic.
- High down payments. Many believe a 20% down payment is needed to purchase a house, which can take many years to save.
- Student debt payments. According to the NAR, 37% of first-time home buyers reported having student debt in 2021, which can take two years to save for a down payment. This debt can adversely affect your debt-to-income ratio.
While these are all valid hurdles renters may need to overcome, here are some things you can do to make the path to homeownership easier:
- Use a calculator to determine if renting is a better option than owning. Consider factors such as the time you expect to stay in your new home, rent and home appreciation rates, and the rate you earn on savings, taxes, and maintenance costs.
- Research different mortgage loan programs. First-time home buyers should look into all purchasing programs, including FHA loans, VA loans, and Dream Possible Home Loans. Getting pre-approval to be ahead of the game is also a good idea. Some banks offer programs that allow you to be underwritten upfront so that you're ahead of the process versus other buyers when you find your home. This is especially advantageous in a low inventory market. And if you are self-employed and can't supply a W-2 or pay stubs, a bank statement loan is a good option.
- Save money. Having money saved up is crucial when buying a home, but not all loans require a significant down payment. While some loans will need as much as 20% down if you don't want to pay private mortgage insurance, FHA loan down payments can be as low as 3.5%, VA loans require no down payment, and depending on your credit score, you can pay as little as 3% down or no down payment at all. However, you should budget another 2%-5% of the sale price for closing costs and fees you may need to cover.
- Determine and improve your DTI. Your debt-to-income, or DTI ratio, is the percent of your monthly gross income that goes toward outstanding debt. Lenders look at this ratio to determine how much you can afford to pay for a home, which is why paying down as many outstanding debts as possible is essential. If you want to know how much house you can afford, here's another calculator you can use.
- Find a reputable real estate agent - The right agent can make all the difference when buying your first home in a low inventory market. Find an agent to seek your best interests and give you their full attention. Ask friends and family for recommendations, check online reviews, and talk to two or more agents before you make a decision.
Here's a calculator to help you determine whether buying a home is a better deal than renting. For more information on buying a house, call the experts at NASB at 888-661-1982 or click here.
