Many millions of consumers who either previously owned a home or have never owned a home before are all too familiar with the financial drain renting poses. Here’s four renting realities consumers face…
Your Home Is Controlled By Your Landlord
A legal right to occupy the property does not not include making changes to the property. Most rental agreements are such that you cannot simply make arbitrary improvements to the property without first consulting with and acquiring approval from the landlord. Want to change the locks? Want to repair the patio door? You’re going to need landlord approval before you can take any action, otherwise could be in void of your rental agreement prompting a warning from your landlord or worse an eviction. The reality of renting unlike homeownership, is you’ll always be handcuffed your landlord for changes or improvements to the property including minor repairs, assuming of course the landlord wants to make those improvements or changes. Owning a home provides the freedom to answer to no one.
Your Rent Payment Is No Different Than An Adjustable-Rate Mortgage
The attractiveness of a fixed rate mortgage is that it remains constant over time, doesn’t rise, doesn’t drop, just remains fixed allowing a home buyer to plan their budget i.e. their income and expenses around something that is measurable for the long haul. Renting on the other hand is not fixed, and remains subject to change. Even if you have lease, it is still on fixed for the term of the lease only. Expect your rent to rise over time as most opportunistic landlords take advantage of market conditions. Much like an adjustable rate mortgage that adjusts on an annualized basis, the rent payment can change as frequently or worse more than once per year, depending on the terms of your rental agreement. If you have a month-to-month rental agreement the landlord can change the rent at any time.
We are sitting in unemployment rate at 5.8% and the prospectus of the economy in terms of job growth is looking optimistic. Job growth coupled with low unemployment drives the housing market. As long as this trend continues expect rents in many markets if they haven’t already to rise and remain at those higher levels well into the future. With rising rents also comes increased competition from other people seeking tenancy. The higher the rent prices, the more lucrative it is for landlords set and procure higher rents shutting out affordability for people who cannot afford a higher housing payment obligation with their household incomes. This dynamic can easily force a family to stay put and be subject to the constraints and/or the conditions set forth by their current rental agreement. Alternatively, buying a home prevents future instability in your housing situation.
Reality Check: Your Rent Payment Pays Your Landlord’s Mortgage
Landlord think like this: I have more discretion over my expenses if someone else is paying my mortgage payment. When you buy a house, and you do so by taking a fixed rate mortgage payment, call it a 30 year fixed rate mortgage where you pay principal and interest over time so at the end of 30 years the loan is paid off in full, you are building home-equity thereby increasing your net worth. Similar to a bank savings account where you deposit money in on a monthly basis with the return, making a mortgage payment on an amortized loan is the same concept. As you make timely payments of principal and interest over time your mortgage mortgage balance decreases, and the difference between what you owe your home and what your home is worth is a wealth creator you don’t have any benefit from when renting. Your landlord is the happy recipient of this dynamic . Moreover, as a renter you don’t receive the mortgage interest deduction or any deduction for property taxes either meaning you are taxed on a larger percentage of your money then you are as a homeowner.
If you think you cannot qualify to buy a house. Try again. There are many available first-time buyer loan programs available with as little as 3.5% down. Previously owned a home before in the past and have credit challenges? Many lenders now also offer available second chance options geared towards helping people who previously owned homes, successfully repurchase. Whatever your circumstances are, if you are grounded in your occupation, know you want to settle down, you owe it to yourself to see what you could do to qualify or what action steps you would need to take to position yourself to qualify in the future. Talk to a mortgage lender and explore the possibilities while homeownership is still very affordable in many markets and interest rates are incredibly low from a historical perspective.
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