SACRAMENTO MORTGAGE BROKER EXPLAINS HOW MUCH IS NEEDED TO OWN OR RENT
Choosing a mortgage can be very stressful and confusing. This article aims to outline some basic information regarding the differences between fixed-rate and adjustable-rate loans but it’s always a good idea to speak to a Sacramento home loans company for specifics regarding your situation.
Fixed Rate Mortgage
For most Americans, buying a home is a major expense that occurs at least once a lifetime. Generally, housing takes up approximately 30% of a household’s yearly spending, according to the Bureau of Labor Statistics. Of course this depends dramatically on where you live, what kind of home you have, and whether you own or rent. Determining what is the best option for your situation can be tricky and it’s best to speak to a Sacramento mortgage broker you trust for advice in your situation.
GOBankingRates surveyed the cost of renting compared to that of owning a home in each state and in DC. They found it’s less expensive to own a home than to rent in 42 states, including in California.
Purchasing a home is a complicated, expensive process but it may be right for you depending on your circumstances. Below are several factors to help you understand the comparison between owning and renting property.
HOW LONG ARE YOU STAYING?
A significant factor is whether you plan to stay for an extended period of time in the area. The longer you stay, the better an investment a home is. The minimum stay, according to economists and housing experts, is three years or more. The longer you stay, the longer you have to spread out the costs of buying a home, including closing costs, commission, etc. Staying longer allows a home-owner to take advantage of more price appreciation on the home. In the current job market, especially for millennials, employees tend to switch jobs relatively frequently. This can force an individual out of their area, making it more difficult to justify buying a home. So long as the homeowner lives in their home for seven or more years, buying is less expensive than renting in the 100 largest US metro areas, including Orange county and Los Angeles.
How much home prices increase or decrease have a significant effect on how much you save when you buy a home. If prices increase dramatically, you locked in a lower price, therefore saving a lot. If house prices deteriorate, for example in a recession, mortgage payments would be significantly more expensive than renting. Some areas of California, for example Orange county and Los Angeles are among the 10 riskiest places to buy a home. Being in a financial position to tolerate changes in market value makes it easier to purchase a home.
When renting, there’s always a landlord or building superintendent to fix any mechanical or structural problems that may occur in the home. When owning a home, all those fixes are the homeowner’s responsibility. It’s a good idea to budget around 1% of the home’s purchase price for yearly maintenance, usually a few thousand dollars. This is especially true of older or fixer-upper homes. Many people don’t consider just how expensive repairs and maintenance on the average home is, let alone a home with additional problems or vulnerabilities. Be sure to have a thorough home inspection done on any home you intend to buy.
HOW MUCH CAN YOU AFFORD?
There are several factors that vary for each person that affect whether it is more expensive to rent or own. This includes the price of the home, how long you expect to stay, the local income tax, and the mortgage rate. Not only is there the monthly mortgage payments, but significant upfront costs in buying a home. Most loans request or require a 20% down payment. If you don’t have the money upfront and can’t qualify for a loan, you only have the choice of renting. A Sacramento mortgage broker can explain this in more details if you have further questions.
A very important factor of how expensive it will be for each individual to purchase a home is their tax bracket and mortgage rate. The government gives deductions for loan interest and property taxes. A home that may have higher upfront mortgage rates than a comparable renting unit may end up being less expensive than the renting option after tax deductions are taken into account.
When you are able to acquire a loan with a relatively low rate (under 7%), the cost of owning is typically lower than that of renting. Of course this depends on how strong of a loan candidate you are which a Sacramento mortgage broker can help determine.
RENTING VS OWNING BY SQUARE FOOT
As of September 2017, the median home listing price in Los Angeles is $748,000, with a median price per square foot of $476. The median cost to rent a one bedroom in Los Angeles is $1,350. According to Zillow, buying a home is more advantageous than renting after 3.7 years in Los Angeles.
San Francisco is significantly more expensive, with an average listing price of $1,150,000 at $1,003 per square foot on average. The median rent price is $4,450 at $4.10 per square foot. It is more cost efficient to buy a home than to rent if you expect to be in San Francisco for 5 or more years.
The median listing price for homes in San Diego is $675,000 at $443 per square foot. The median renting list price is $2,600 at $2.18 per square foot. It becomes more fiscally advantageous to buy rather than rent a home if you stay for 4 or more years.
Exactly how much each individual will spend on a mortgage depends on many factors that are difficult to anticipate. Speak to a knowledgeable Sacramento mortgage broker to understand your options.
Speak to a Sacramento Mortgage Broker Today for Your Financial & Loan Questions
With almost 20 years of experience providing guidance to renters and homeowners, you can trust the team at Sunrise Vista Mortgage team with your financial questions. Give us a call at (916) 729-2000 to speak to a Sacramento mortgage broker.