According to a recent report by Harvard University’s Joint Center for Housing Studies, the past 15 years have seen a drastic shift in how Americans approach renting and owning. More people are renting, while fewer are buying houses. In fact, the average annual growth number for renting is now approaching the peak number homebuying reached in 2006, just before the housing market crash.
The reasons for such explosive rental growth are numerous: lingering effects from the economic collapse in 2008, the revitalization of many urban cores, Baby Boomers aging out of their houses, and high rates of student loan debt among Millennials. Boston is a particularly expensive rental market full of debt-saddled college grads, many of whom probably still see home ownership as out of reach.
But should they? Maybe not. The apartment experts at ABODO know a little something about renting, and they’ve broken down four of the most common myths that keep renters from homeownership. Read on to find out how buying a home might be a smart choice for you.
MYTH #1: Homeownership Is More Expensive Than Renting
Not necessarily. As demand for rental properties has grown, so have rents. In fact, in 2015 rents nationwide rose 4.6%, the largest increase in almost 10 years. According to a recent study, it’s cheaper to buy a house than rent in 42 states, including Massachusetts. Down payments might give you sticker shock, but more often than not, a monthly mortgage payment will be comparable (or less) than rent, and at least you’ll be gaining equity. Plus, mortgage interest payments are tax-deductible. This handy calculator from the New York Times can tell you if homeownership might actually be a good financial move.
MYTH #2: Your Savings Will Never Recover
After a downpayment, and mortgage payments, and furnishing, and repairs, and maintenance, and property taxes… saving money is a lost cause, right? Think again. Every mortgage payment that pays down principal and interest is a kind of “forced savings account.” You have to pay it, so you do. But unlike a rent payment, that money isn’t gone forever, into your landlord’s bank account. Assuming you don’t default on your loan and go into foreclosure, you’ll see it again, albeit in a different form. Establishing equity in your house is a long-term investment that will also make you eligible for new lines of credit. It might take 30 years to pay for your house, but it won’t be 30 years of checks down the drain.
MYTH #3: You Can’t Get a Loan
Yes, the days of subprime lending are over — and thank goodness, given how that turned out. After what happened from 2007 to 2009, banks are understandably cautious about handing out large loans for new homeowners. But that doesn’t mean it’s impossible. In 2014, Fannie Mae and Freddie Mac announced a new initiative, aimed at encouraging first-time homeowners, that backs mortgages with extremely low down payments — as low as 3%. There are conditions, of course: Potential homebuyers must buy private mortgage insurance and have a high credit score (at least 620). But such a low down payment (the standard is 20%!) is a major help for younger homebuyers who might still be paying off student loans.
MYTH #4: You’re Too Young to Own
According to the National Association of Realtors, over 35% of new homebuyers in 2015 were Millennials, making them the largest group of recent buyers for two years running. And the median age for Millennial homebuyers was 30. So it’s not just Gen X or Boomers buying houses. (In fact, Boomers are moving into apartments in droves.)
Obviously, homeownership is a major life decision, and not one you should make after reading one internet article. Before you commit to a mortgage and years of minor home repair, it’s a good idea to take an honest look at your finances, your priorities, and your plans for the future. But if you decide to take the plunge into homeownership — and you’re in the Boston area — get in touch with Janet at comehometoboston.com to set up a consultation. Happy house-hunting!
This article was provided by Lizzy Manthe at ABODO