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Housing Affordability – Buying Versus Renting

“Affordable housing is housing which is deemed affordable to those with a median household income or below as rated by the national government or local government by a recognized housing affordability index.” This topic is widely spoken about as home prices increase and interest rates are still low, can consumers still afford the $250,000 home when bidding thousands of dollars over that asking price?

Urban Institute recently published a paper on affordability of buying or renting as a whole and in this market. It’s generally no secret that renters pay a higher percentage of their incomes toward their rental payment than homeowners. Take for example, a homeowner pays $1,200 a month for all mortgage related expenses, HOA, water, electric, and internet for a 1,300 sq/ft townhouse while their partner rents an 800 sq/ft apartment for $1,500 a month not including utilities! A renter will typically pay 26% of their income towards their rental, whereas a homeowner will typically pay 16% of their income towards housing.

You can view homeownership as forced savings, meaning you’re investing in equity that could provide a great ROI when selling but you’re also investing in yourself. In many instances, a mortgage can be lower than your monthly rent payment, allowing you more time to invest in stocks or increase your 401K contributions. You don’t get a return on rent payments.

What is one of the most favorable things about a mortgage? Your monthly payment stays relatively the same over the duration of the loan type if it is a fixed loan. So, you can plan what your housing expenses will look like over the course of 15, 20, 30 years. The only differences will be if property taxes, and property insurance costs increase. However, the principal and interest portion of the payment, is fixed. Rent is volatile and will continue to increase throughout the duration of this housing expense.

If you have the ability to purchase a home, it is highly recommended to find a property that you could see yourself in for 5+ years. “We need to stop seeing housing as a reward for financial success and instead see it as a critical tool that can facilitate financial success. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone.”

Should you have any questions, reach out to a reputable and local mortgage lender and/or real estate agent to see whether homeownership makes sense with your current financial position or how these real estate professionals can help guide you to getting ready to make this big purchase.

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