Rental Rates Rise, Especially for Single-Family Homes
Renters are about to start paying more every month, according to data from CoreLogic, due to a shrinking supply of single-family rental homes. After the high number of foreclosures following the Financial Crisis, a surplus of low-priced single-family homes were purchased by property investors and converted into rental homes. From 2010 to 2016, the number of single-family rental homes jumped 38%, while multifamily or apartment rentals increased just 3%. Since that surge, supply has flattened while demand has remained strong.
Metros experiencing rapid home price appreciation are among the leaders in rental rate appreciation as well. For example, in Phoenix the rental vacancy rate stands at just 2.6%, and annual rent increased 6.7% in the last year. In Las Vegas, rent is up 5.8% year-over-year and in Seattle, rent is up 5.5% year-over-year. Capital Economics reported the number of single-family homes available for less than $1,250 per month in rent has dropped 40% in the past six years.
In many regions, rents are rising faster than home prices, but even in areas where rental rates and monthly mortgage payments are comparable, there is a clear advantage to buying. When you are paying down your mortgage you are building equity in your home every month. When you rent, that monthly payment is just going to your landlord. You gain access to that equity when you sell your home or through a cash-out refinance. The major difference between buying versus renting is that when you buy a home you are making an investment.
With rising rents, it’s taking longer for renters to save for the down payment on a home. Many renters who are struggling to save for a down payment, may not be aware of the options available to help them buy a home. Since buying a home is such a valuable investment and the first step many Americans take toward building wealth, there are numerous ways to achieve that goal.
Low Down Payment Loans
Many renters believe they need to save for a 20% down payment. A 20% down payment is great if you’ve accumulated the savings, but if you don’t have to wait to save that much to buy. The government-insured FHA Loan is available with down payments as low as 3.5%, depending on your credit score. The USDA Loan and the VA Loan are available with no down payment. There are even conventional options like Fannie Mae HomeReady and Freddie Mac Home Possible available with down payments as low as 3%. Ask your lender about what low down payment loan is best for you.
Down Payment Assistance
There are over 2,500 down payment assistance programs nationwide. Down payment assistance is available at the federal, state, and local levels to add to your down payment savings and buy a home sooner. Some down payment assistance programs are grants that you will not have to pay back, others are loans that you will pay back with the cost of your mortgage. Visit downpaymentresource.com to find out what down payment assistance programs are available in your area.
HomeFundIt is a digital down payment platform that streamlines the gifting process and documents all gifts you receive safely and online. Through HomeFundIt, friends, family, or anyone else who wishes to give can contribute toward your new home. You can use HomeFundIt in lieu of a traditional wedding registry, or simply share your campaign on social media. To learn more about HomeFundIt visit www.homefundit.com.
With rents rising and mortgage rates at historic lows, buying is the more affordable option in many regions around the country. Yet even when the average rental rate is close to the average monthly mortgage rate, buying a home is still a better investment. If you have any questions about buying versus renting, please let me know.