Rent vs Buy 2021

rent vs buy 2021
Increasing rent

Thinking of your Rent vs Buy 2021 question? Consider Quarterly Residential Vacancies and Homeownership released by the US Census (census.gov) for the third quarter of 2020 is very interesting.  First the good news is that the US homeownership rate is the highest it’s been in a decade!  The seasonally adjusted US homeownership rate of 68.2 percent recorded in the second quarter 2020, was the highest rate since 2007.  In fact, the homeownership rate hasn’t had two consecutive quarters above 67 percent since 2009.  As you remember, the homeownership rate progressively dropped through 2015 to hover in the 63 percent range, which was the lowest homeownership rate in several generations.

rent vs buy 2021
Homeownership rate 1997-2020

The story of the housing market this year has been nothing short of phenomenal.  Initially thwarted by a dismal spring market, only to rebound at a record setting pace.  Even with historically low existing home sale inventory and rising home prices, eager home buyers are actively pursuing homeownership. 

On the flip side, the second and third quarter US rental vacancy rates are the lowest since 2008.  And the mean US rental asking rent of $1,600 marks a high point as rents continue to creep higher.  Of course, homeownership rates and rental vacancies will vary significantly depending on the region and locality.  However, looking at the US averages is a good benchmark to see trends develop.

For many, comparing increasing rent versus a low interest mortgage rates makes buying a home the answer to the rent vs buy 2021 question.  A November 8, 2012 article from Realtor Magazine (Rising Rents Press More Americans to Make Big Decision; magazine.realtor) describes the renter’s plight, by saying, “Rental price expectations continue to rise and are much higher than home price expectations…” This sentiment continues to hold true.  Besides escaping rising rents, many home buyers are drawn to the touted benefits of homeownership, including increased well-being and wealth-building.

How do you know if renting or buying is better?  First, when deciding on the rent vs buy 2021 question, there are many other considerations besides rising rents.  Consider how long you intend to live in the area.  Renting is often the housing solution if you think your residence in the area is temporary. 

Next, if you don’t already have one, create a housing budget.  Besides deciding on how much rent you can afford, talk to a mortgage lender to get prequalified to further help you understand how much you can afford to pay for mortgage or rent. 

Once you have a budget of what you can afford, create an estimated renter’s and home owner’s budget to compare.  Besides the basic housing payment (rent or mortgage), there are other items that need to be taken into account and can vary depending if you rent or own.  These other items include (but not limited to) monthly utilities, insurance, and maintenance.  To help with estimating the “extras,” start by asking the landlord and/or home seller for twelve months of utility bills (Montgomery County MD requires home sellers to provide this for owner-occupied homes).  Ask your insurance agent for a quote to compare renters’ vs homeowners’ insurance. 

Home maintenance is usually forgotten and not budgeted.  Tenants typically have minimal maintenance, which is an attraction to renting.  Generally, home maintenance for owners usually includes having seasonal or annual inspections on the home’s systems (e.g., HVAC, roof, etc).  Additionally, you have to budget to repair and/or replace systems as they age. 

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/12/13/rent-vs-buy-2021/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home Buying Strategies 2020

home buying strategies
Home Buyers (infograpic from nar.realtor)

Experts’ home sale inventory forecasts for the spring echo expectations from recent years. And in some regions, it could be a very competitive home buyer market.  Affordability is likely to be a major issue according to CoreLogic’s chief economist Frank Nothaft (Peering into the Housing and Mortgage Outlook with 20/20 Vision; corelogic.com; December 5,2019).  The CoreLogic Home Price Index predicts that 2020 home prices will increase more than they did during 2019.  Lower priced homes will likely appreciate at a much higher rate than upper bracket and luxury homes.  Buyers should have their home buying strategies in mind when looking for homes.

Many first-time home buyers may become discouraged and decide to continue renting.  However, renting is expected to be less affordable in 2020.  CoreLogic’s Single-Family Rent Index indicates that rents are increasing at double the rate of inflation.  So, although renting may seem like the default fallback, it may be the more expensive option.  A combination of increasing rent, a continuing good economy, and historically low mortgage rates are expected to be the catalyst for home buyers to get into the market.

If you’re a home buyer, the 2020 housing market outlook may sound daunting. Although you may be anticipating something akin to the Game of Thrones this spring, take heart because planning and having home buying strategies can help your home buying success.

Talk to a mortgage lender.  One of the worst feelings is finding out a seller took another offer because your offer didn’t have a financing letter.  Not identifying a lender and securing an approval letter before looking at homes is a strategic error, especially if you need to move fast on making an offer. Having awesome credit scores, a good income, and savings in the bank, means nothing to a home seller unless a mortgage professional confirms this with a mortgage approval letter. 

Work out a home buying budget.  Consult financial professionals, such as your financial planner or CPA to review income, assets, and debts to determine a realistic housing budget.  In deciding on your housing budget, consider monthly mortgage payments, HOA or condo fees, property tax, insurance, utilities, maintenance, etc.  Your loan officer can help determine a home price range based on your monthly housing budget.  Although, your home buying budget may be less than the maximum mortgage amount for which you qualify, don’t be tempted to go beyond your budget.  Sticking to your budget can help you avoid “buyer’s remorse.”  

Although the national housing market is portrayed as very competitive for home buyers, CoreLogic’s Nothaft suggests that local neighborhood markets can differ widely.  As a home buyer, keep an open mind and consider a wider home search area.  Consider all your home buying options, including new construction, and the possibility of doing an FHA 203k renovation

One of the most important home buying strategies is to choose your Realtor carefully, as not all agents are the same.  Hookup with an experienced full-time real estate agent.  Empirical research studies indicate that a seasoned, veteran agent can make a positive impact on your home purchase.  Experienced agents understand the nuances of negotiating and can make your home buying experience more efficient.  Full-time agents know the market, which is an asset during your home search.  Don’t just rely on the first agent you meet at an open house, or finding an agent on the internet.  Talk to several (or more) Realtors to determine if they’re a good fit for your goals.  Make sure the agent you hire has your best interests in mind when searching homes and negotiating. 

Original article is published at https://dankrell.com/blog/2020/01/10/home-buying-strategies-2020/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

New Home or Resale for You?

new home or resale
First time home buyers (infographic from nar.realtor)

No matter what items a home buyer has on their wish list, they are typically constrained by the home price.  As a result, the buyer is often limited in their choices.  Accordingly, buyers prioritize home features and benefits when comparing homes. Deciding between a new home or resale becomes a part of the buying process.

Nonetheless, home buyers often have a choice between a new home or resale.  Besides the allure of contemporary design and modern building materials, the benefit of new construction is the minimal maintenance during the first year of ownership.  Although many home buyers desire to buy new construction, the combination of their budget and criteria lead them to a resale home. 

A resale refers to a home that is being sold by a home owner, rather than the builder.  The average age of a resale home can vary depending on the location.  It’s not uncommon to find a resale in a new home development.  However, when resale comes to mind, most think of homes where they grew up.

Although the home buying budget is a main consideration, there are other reasons why home buyers decide to purchase a resale rather than new construction.  One of the main reasons, as stated above, is that the resale fits their criteria for price, location, size, etc.  It’s typical to get more house and yard when purchasing an older home, when compared to a new home of similar price.  Resale homes tend to be located in established neighborhoods, whereas new home developments’ amenities are often not yet completed. 

Regardless, some home buyers are attracted to older homes.  It seems as if there is a correlation between a home’s age and the charm it exudes.  The older the home, the more likely a home buyer is captivated by its charm.  When explaining a home’s “charm,” buyers usually describe a combination of style and craftsmanship.  They often refer to the saying “they don’t build them the way they used to.” 

Although most home buyers want a turn-key home, some buyers find opportunity in older homes that are in need of repair or updating.  These buyers feel they can create a home that meets their needs and lifestyle without breaking their budget. 

When buying a resale, don’t expect the home to be perfect, even if the home is relatively new or has been renovated.  There is no getting around the fact that living in a home promotes wear-and-tear.  Consider that a home is made of many components each having a limited life span.  Regular maintenance can prolong a home’s life.  However, you will eventually have to replace components and systems. 

Resale homes are not maintenance free, and deferring maintenance creates costlier repairs.  Experts recommend that you have a repair budget.  You shouldn’t just budget for regular maintenance and repairs, you should also budget for future updating.  Ask your agent about a home warranty that can help you with repairs on a fixed service-call fee.  Get a thorough home inspection.  Home building has changed dramatically over the last one-hundred years, so make sure you hire a licensed inspector that is knowledgeable with the engineering and materials in your home.  (Keep in mind that home inspectors are not perfect, so there may be a chance of finding conditions that eluded the inspection.)  Even if the home appears to be in good condition, the inspection is likely to find items in need of repair.  You and your agent can decide on the best negotiating strategy of inspection repairs. 

Original article is published at https://dankrell.com/blog/2019/12/15/new-home-or-resale-for-you/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Ask About Closing Fees

ask about closing fees
Home Buying Process (infographic from keepingcurrentmatters.com)

To help home buyers understand the costs of buying a home, the Consumer Financial Protection Bureau (consumerfinance.gov) rolled out the Know Before You Owe initiative in 2015.  The intention was to help home buyers understand and ask about closing fees. The project actually has deeper roots in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Dodd-Frank created the CFPB and mandated that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so borrowers can understand the financial aspects of their loan. 

Prior to Know Before You Owe the home buyer would receive a Good Faith Estimate from the lender and a proposed settlement statement (which was on the HUD-1 form) from the title company.  The pre-HUD, gave a fairly close estimate of the amount they needed at closing but could change depending on final lender charges.  If the amount was a little short, the buyer would write a check to cover the difference.  Sometimes the buyer would get money back at closing because the amount they needed was less than the amount the title company actually collected.  Regulations dictated when the buyer received a lender’s Good Faith Estimate and settlement costs.  If the HUD-1 was delayed, home buyers didn’t have much time to ask about closing fees.

But in the aftermath of the financial and foreclosure crises, there was concern that home buyers didn’t get accurate and fair closing costs disclosure.  Know Before You Owe changed the process of disclosing closing cost estimates to provide more accurate closing cost figures.  A new Closing Disclosure (CD) was devised to be consumer friendly.  The process of closing cost disclosure changed such that the lender is now responsible for providing the buyer the CD (in lieu of title company’s HUD-1).  However, the role of the title company (or closing agent) is still to conduct the settlement.  The standardization of the closing form allowed time to ask about closing fees.

Unfortunately, title insurance and other title related fees (such as water escrows and the property survey) are still often misunderstood and disputed.  Although the CD does a good job breaking down closing costs to help you understand what you’re getting, it falls short in explaining title fees and options.  For example, in Maryland, the cost for title insurance that is disclosed on the CD is the more expensive enhanced policy.  And it’s not just happenstance, Maryland Realtor purchase contracts require that the lender disclose an enhanced title insurance policy on the CD so you know how much the most expensive title insurance will cost.  But unless you know to ask, you may by default be purchasing the more expensive enhanced policy.  The survey is another title charge that may be charged by default.  Although many feel it’s not worth the expense, it may be relevant to your title policy.

Fortunately, your loan officer will review and help you understand your lender fees.  On the other hand, the title company will be communicating with you throughout the home buying process.  Make sure you read and understand all emails, as they will likely describe your title charges and options.

Life is hectic and it seems as if time is at a premium.  And although buying a home can be exciting, it can significantly add to your daily stressors.  But if you want to avoid surprises down the line, take the time to understand the process.  Ask as many questions as it takes to know what to expect at closing.  Have your real estate agent explain to you your purchase contract.  And, don’t wait until settlement to communicate with the title company, or ask about your CD. 

Original article is published at https://dankrell.com/blog/2019/11/08/ask-about-closing-fees/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home Buyer Beware

home buyer beware
Home buyer tips

Whether you admit it or not, buying a home is a stressful endeavor.  Even if you’ve purchased a home before, the process can be somewhat nerve-wracking and overwhelming.  Taking time out of your already busy schedule to search and visit homes, as well as applying for a mortgage can make life hectic.  So, who needs the added worry that that the home seller and/or listing agent is trying to hide something from you?  Home buyer beware.

Maryland requires the home seller to disclose any known latent defects, regardless if they are choosing the disclosure or disclaimer option. To be clear, the Maryland Real Estate Commission’s Residential Property Disclosure and Disclaimer Statement states that a seller must disclose “Material defects in real property or an improvement to real property that: (1) A purchaser would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property; and (2) Would pose a direct threat to the health or safety of (purchaser and/or occupant).”  Regardless, there is still a “home buyer beware” atmosphere. 

How can you proceed confidently with your home purchase if there is a sense of distrust?  To counteract the home buyer beware phenomenon, focus on “trust and verify.”  The concept of trust and verify is about taking disclosures at face value and exercising due diligence.  To the best of your ability, confirm the accuracy of what is disclosed, as well as investigate any areas of concern.  Many items can be verified online, or by calling the locality where the house is located. 

Home buyer beware

Of course, you should always conduct a home inspection.  However, prior to hiring your home inspector, ask about their scope and limitations of the inspection.  Home inspectors are considered generalists, such that they are not typically an expert in any aspect of home construction, or the home’s structure and systems.  However, they are trained to identify potential common problems.  They will also recommend that you consult an expert for further information on anything that is outside the scope of the inspection.  And although home inspector licensing laws prescribes minimum inspection standards, there is no guarantee that everything will be inspected thoroughly beyond a visual inspection (e.g., chimney or pool).  Make sure your inspector meets your expectations so as to thoroughly inspect all systems of the home. 

If the home was expanded, verify that additions and/or modifications to the home were permitted by the local jurisdiction.  Unpermitted additions can create a number of issues, including having your lender deny your mortgage.  It’s not uncommon for additions/modified items (such as a deck, and even electrical improvements) in a home to go unpermitted.  This is usually because the home owner did it themselves, or hired a contractor who cut the corner of getting a permit.  The permitting process certifies that repairs/renovations comply with local building and zoning codes.  Making sure any addition or home expansion was permitted and passed final inspection gives peace of mind that the completed project meets local building health and safety standards.

Keeping home buyer beware in mind, due your due diligence. There are many other aspects of the home which can be verified, including (but not limited to) schools and zoning.  If you’re buying a home to go to a specific public school, verify that the house is within the school’s boundaries and if there are plans to redistrict.  If you plan to have an air-b&b in your home, make sure the house is appropriately zoned. You should also check zoning and the local planning office to make sure your potential building/addition plans are not restricted.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/09/04/home-buyer-beware/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.