Rising Rents Outpacing Mortgage Costs
The oldest debate in real estate may be whether to rent or buy. Both renting and buying can be advantageous to the resident depending on their specific financial situation. While buying a home will require a larger down payment than renting, some real estate professionals argue that owning is more affordable than long-term renting. Zillow recently produced some data to back up this sentiment.
While buying a home requires a down payment up front, homeowners build equity as they repay their mortgage loan and in some cases, the monthly mortgage payment is lower than the equivalent rental payment. Zillow reports that the median US rental rate takes up 29.1% of the median monthly income, while mortgage payments in the third quarter of 2017 accounted for 15.4% of median monthly income.
As rents continue to rise, renters are struggling even more to save for a down payment. Renters in high-cost markets are feeling even more of a squeeze. From Zillow’s chief economist Svneja Gudell, “in most markets, current renters are at a disadvantage compared to years past because paying the rent takes up a much larger share of their income than it did before. […] For those hoping to buy a home, it could be a significant part of their down payment.”
Owning a home is in many cases, the first appreciating asset a person will own. When rising rents price renters out of homeownership, they put off this vital step toward building wealth. Programs like HomeFundItTM are designed to alleviate the down payment obstacle and help more creditworthy borrowers finance a home.
Sources: Mortgage Professional America