The ads say "For what you are paying in rent, you can own your own home". This is very misleading.
In fact, Congress is now trying to pass legislation that makes this type of deceptive advertising illegal.
Many new homebuyers who simply wanted to participate in the "American Dream", are now learning that the bank owns their home. And every cent that they had "invested" is gone, with nothing but moving bills and ruined credit to show for it.
For one thing, homebuying is an expensive process, requiring a good bit of cash up front. A 5% down payment on a $300,000 house is $15,000. Adding in your share of transfer taxes, title fees, lenders’ fees, points, and other closing costs, your out-of-pocket "cash to close" may be $30,000.
Do you have $30,000 in your bank account?
And that’s if your credit is excellent. And unlike a security deposit, these costs are NOT refundable when you sell! In fact, when you sell, you get to pay them all over again, including the real estate commission.
The average security deposit is a fraction of that. And landlords prefer to be able to refund security deposits to tenants who take care of their homes.
Have you ever heard of a state or county offering a full refund on transfer taxes and document stamps if you take care of your home?
I know, silly question. But it IS making you think, isn’t it!
In addition, loans for purchase are far more difficult to qualify for than even a few years ago. If your credit score is below 700, you may not qualify at all, or have to pay additional points. That $30,000 may not quite cover it. And all this to buy a house that may be worth LESS in the coming years.
Ask yourself this – why would I buy a house whose future equity is questionable? Recently, we have seen real estate actually drop in value, in some areas, dramatically. Those who purchased a home in the past few years now owe MORE than the house is worth.
In other words, they are making payments on a $300,000 house that would sell for maybe $225,000. That alone is a scary thought. A home is no longer the wise investment it once was.
Here’s something to give some thought to –
Would you pay $900 for gold today, knowing that in five years there’s a good chance it will be selling for $800? I sure wouldn’t, and neither would you. In fact, if I had gold, I would be selling NOW, and BUYING it back in five years. I have better ways to invest my hard-earned money. And so do you!
In fact, the smart ones did exactly that! The smart ones sold their homes several years ago, when everyone else was buying. They invested their profits, and are now leasing a home, often for less than the new home owners’ payments are.
This is how one "moves up" in their standard of housing. Buy when it makes sense to buy, rent when it makes sense to rent.
And as my mother still says, "A word to the wise is sufficient".
Worried about your rent going up? If you are able to sign a lease for a year or more, you are assured your rent will NOT go up.
Can city hall make a guarantee as good as that? Of course not.
The rental market, in many areas, is soft, meaning it’s a "buyer’s market" and landlords are offering promotions and incentives for you to rent their property.
Smart Rental Shoppers know there are bargains to be had!
Here’s something to think about –
Purchace vs. leasing : For the same money, you can generally rent in a better neighborhood than you can buy into, or rent a nicer house in the same neighborhood. And in today’s housing market, this is truer than ever. This has ALWAYS been true because there are so many upfront expenses involved in buying and selling real estate. . .
Expenses that have NOTHING to do with increasing the value of the real estate - and here are just a few you will meet on that "HUD1 form" -
Can you name even one other investment that requires so much red tape?
No other investment has such burdonsome upfront costs as real estate.
In an "UP" market that's fine. But as a buyer in today's "DOWN" market, all you will be doing is enriching the goverment coffers.
As a renter, if you like the neighborhood, perhaps you will want to stay and even purchase your home when (if?) the market loosens up. And by making your rent payments on time, a landlord can be one of your best references!
On the other hand, if you find you don’t like the neighborhood, you are not faced with the prospect of trying to sell a home for less than what you owe, paying real estate commissions, settlement costs, etc. You will be trying to SELL a house in a bad market where homes sit empty for a year or more. Remember, as long as you "own" the house, you will still be liable for payments, taxes, insurance.
And now for a note of cheerfulness -
Nothing is forever, not even the current economic "crisis". Sooner or later, the real estate market will begin to move, and you may then want to consider buying a home.