3 Reasons to Buy a Home in South Florida Instead of Renting One + a Real Scenario.
The house with a white picket fence is the epitome of the American dream. But the financial benefits of buying a home rather than renting have yo-yoed over the years. Ever since going back to the 1980’s when the “Mortgage Backed Security” or “MBS” for short was introduced in Wall Street. Home buying became more accessible to people, instead of having to go to your community bank for a home loan you could get financing from large lending institutions around the country, which drove competition among lenders up and benefited the consumer.
The housing market is very much correlated with the overall health of the economy. The process of buying a home in itself, employs many people from many different industries, which in turn helps boost the economy, from a consumer standpoint. In the 1980’s interest rates and inflation were at an all time high, the average 30 year fixed rate was at about a 14%! (today it is around 4%). This caused relatively lenient lending standards for home buying which resulted in under qualified borrowers defaulting on their mortgages and driving the government to bail out the “Savings and Loans” shops. In the 1990’s we saw the economy recover dramatically and crash again after the “dot.com” boom.
Fast forward to the near past, and we have the financial crisis of 2008 (which we all remember very clearly). Point being; there are always going to be ups and downs in the economy, and ultimately, the housing market. Maybe you are waiting for the perfect moment to buy a home, but in all honesty the perfect moment is always now, if you are throwing your money away in rent every month.
Seize the moment of home ownership
In today’s market, home ownership has never been more appetizing. After the crash of 2008, home values have appreciated to near peak levels, but the values are true in nature and are less likely to lose value (as compared to the years leading up to 2008). This is due to the stricter lending standards and the guarantee by the government ( on Conventional, VA, USDA and FHA loan programs).
Couple this with historically low interest rates and you a recipe for a great long term investment. Interest rates were lowered by the Fed , after the 2008 crash, in order to boost the economy. By having lower interest, people have more of an incentive to invest their money instead of keeping it stored away under their mattress.
The Fed is looking to raise rates incrementally every year, in order to have “ammunition” of sorts, in the case the economy goes into a recession again and monetary policy is needed to be enacted in order to get out of the recession. By having a fixed interest rate, your principal and interest payments will be constant, unlike with rent, where the average landlord raises rent 5% a year.
Tax Savings on Mortgage Interest Paid
The reason for you to get a good CPA to file your taxes for you is in order to declare as little as possible in order to pay less taxes. Well, what if I told you that you can deduct your mortgage interest payments on your taxes?
That’s right, mortgage interest payments are tax deductible and could save you money in taxes payed.
This should be taken into account when deciding to buy vs. rent. You cannot declare rent payed as a taxable deduction or even the increase. Rent money is literally money that you will never see again and that will never work for you. Unlike home ownership, where that money you pay out every month is feeding the value of one of the most powerful assets you will ever have.
Have your Money Work for You
Not stocks, not bonds, not even bitcoin meets the pros of owning real estate. Real Estate is one of the few tangible assets, that is likely to appreciate in value, liquid market to buy and sell and provide income for the rest of your life. People think that investing int he stock market is going to help them retire in tranquility; unfortunately, that is what wall street wants you to think.
Yes, historical average returns on the stock market have been 12-15% but that is taking into account a very long time horizon of 30-40 years! With real estate, you can have your asset meet own of your basic needs (shelter). If you move to a different city or state you can always keep it and rent it; have the rent pay for your mortgage and when it appreciates you will be able to charge more rent and most likely make money every month!
Buy vs. Rent – Loan Scenario
Lets put our money where our mouth is and point out a possible scenario where you can save more than $500 a month, when you buy a home instead of rent. Lets say that you are paying $1500 a month ( on the lower end in South Florida). You have to put down a deposit of course, usually for three months. So that is $4500 right off the bat just to rent. Home Financial Group’s 1% down program allows clients to put down just 1% down payment (the lender covers the other 2%, which brings total equity to 3%) for conventional financing (instead of the traditional 5%).
Lets say you are looking for a property in the $150,000 dollar range, you put down 1% or $1500 that is already $3000 less than your rental deposit. Now, with owning a home comes other costs such as insurance and property tax. Lets say your combined taxes and insurance is $187.50 (based on an average tax and insurance payment for properties in South Florida for $150,000 home. Your mortgage would equal $145,500 (based on a 97% LTV), lets assume that you were able to secure a 30 year fixed rate at 4.625%. Your monthly Principal and Interest payments would be $771.21a month plus the $187.50 for taxes and insurance, brings us to a total of $958.71, that is $500 less that you are paying for rent, on top of a lower down payment vs. rental deposit.
Unfortunately the home buying process can be a stressful time; things don’t always go the way as planned, that is why it is important to get accurately pre-qualified before beginning your home search. But once you find a home you are happy with and see the substantial savings on owning vs. renting, its an easy decision.
Questions? Contact Home Financial Group Today!