Are you currently renting the home that you live in? The Distressed Real Estate Institute™ recently analyzed data on historical pricing for existing home sales of single family homes in the U.S. We looked at historical price data for single family homes from the U.S Department of Housing and Urban Development (HUD) going back to 1970. We applied historical real estate data to today’s real estate market in order to compare and analyze how a typical first time home buyer today could benefit by purchasing a home similar to the one that they are currently renting. Based on historical data, along with current home prices and mortgage rates we believe that if you are currently renting and you have decent credit then you should really think about buying a home right now. This is especially true if you are a first time home buyer who could qualify for an FHA Loan.
Prices have declined so much over the past few years that in many cases your monthly payment could actually be cheaper to purchase a house than to rent it. This is true even after we account for property taxes, insurance and maintenance and repairs. And aside from the monthly housing cost, the historical housing data suggests that continuing to rent instead of buying a home will cost you dearly in the long term.
We compared the costs of purchasing a typical 3 bedroom 2 bathroom entry level home to the costs of renting that same home. While we used a home in Florida as an example the same holds true in all 50 states since the HUD housing data that we are using provides existing home sales data averages for the entire U.S. The price of the home that we used as an example would appraise for approximately $130,000 and would rent for about $1,200 per month.
Current FHA regulations require a 3 ½ percent down payment which would be $4,550 for a $130,000 home. The monthly interest and principal payment with a 30 year fixed mortgage at 3.5% interest would be approximately $700. Property taxes on that home including the homestead exemption would amount to about $133 per month and insurance for that home would be about $150 per month. Adding up the mortgage payment, property taxes and insurance a first time home buyer would have a total monthly payment of $983 per month which is cheaper than paying $1,200 to rent the same home. And this is before considering the tax advantages and deductions of being a home owner compared to being a renter. Other advantages include having insurance for your possessions, having a fixed payment that never changes (if you have a fixed rate mortgage) and knowing that you will not be forced to move or have your rent raised every time your lease expires. The main disadvantage of owning a home would be repairs and maintenance but with the above example you are being adequately compensated to own the home versus renting it (by $217 per month).
Our company specializes in understanding the entry level low priced single family starter homes which are most attractive to first time home buyers. These are also the type of homes that our investors who are cash buyers are most interested in.
These homes are perfect for landlords who want to buy fix and rent and they are also ideal for investors who want to buy fix and flip to first time home buyers. We know this market well because we teach our students how to buy bank owned homes directly from the bank and we show them how to fix and then sell these houses to first time home buyers for a profit. Based on our experience with these first time home buyers many people that are currently renting simply do not know that it could be possible for them to own their own home. If you are currently renting and your credit is not great there are still circumstances where you might be able to buy a home. We have offered seller financing to buyers who had less than perfect credit and we have shown our students how they can offer seller financing to first time home buyers with poor credit. In many cases the buyer’s monthly payment can still be substantially less than rent for the same home.
When you look, at historical pricing data for single family homes in the U.S. the case for owning a home versus renting a home becomes much more convincing. We found that using historical data, this same $130,000 house could be worth as much as $902,200 30 years later in 2043. This is the year when the 30 year mortgage would be paid off meaning that there would be no more mortgage payments (assuming that the house was purchased in 2013).