Rent vs. Buy Real Estate in NJ is a very common question and a tough decision. In most cases, renters are paying as much in rent as they would to cover a mortgage and sometimes taxes too. In theory, a landlord is covering the cost of the mortgage, taxes and profit on its tenants. Here are some reasons it maybe time for you to pay a mortgage of your own?
Pros and Cons of Renting
With renting a home, it offers many perks. If you’re located in a town with high taxes, you may be able to afford the rent but would never be able to pay a mortgage, principle & interest, and high taxes. Maybe this town has public transportation that you like. Maybe its temporary and being on a short-term lease is what you want. Maybe you have a really great roommate. Maybe the location is right where you want to be.
Home repairs are most often covered by the landlord, with no out of pocket to tenants. Deposits on a rental are less then on a purchase. Initial down payment is 1st months rent plus a month and a half security. In NJ a realtors fee is usually one month, if using an agent.
The perfect rental maybe hard to find and is first come first service with credit report, income verification, and application. Not many landlords are so happy to having pets on their lease, but some do.
Pros and Cons of Owning
When you own your own home it gives owners pride in ownership. There is stability in knowing you can stay as long as you’d like. There is financial predictability where as rent may increase but a fixed mortgage will not.
There are home ownership expenses that don’t come along with renting. For example, property tax, homeowners insurance, possibly HOA fees, and any renovations or repairs.
Of course there is the down payment which would depend on your financial situation. You may qualify for FHA at 3.5% down, VA with Zero down, USDA also is Zero down or if you can eliminate the mortgage insurance with 20% down on a Conventional loan. Buyers also have closing costs which are around 3-4% of the purchase price. The option to include a sellers concession would allow closing costs to be financed in your mortgage payment. Buyers never pay commission to realtors, so you can count on the seller paying that.
Mortgage Payments You Can Afford
Can you afford it? A mortgage loan officer will review your debt-to-income ratio and see where you’ll fall as far as a monthly payment. They’ll set you up in the direction of what home purchase price range you should be aiming for. The 28/36 rule applies here while your monthly payment shouldn’t exceed 28% of your pretax income. All other debts shouldn’t exceed 36% of your monthly pretax income.
Buy Now or Wait?
If you’re thinking should I buy now or wait. Here is what they are projecting for 2020. Interest rates will go up from 4.3% to around 4.5%. Home Prices will continue to climb as well. CoreLogic reported that home prices have appreciated by 3.7% over the last 12 months. It also forecasts home prices to appreciate by 4.8% over the next 12 months. A property that is $250,000 this year will be $262,000 by this time next year. With those numbers you’ll be paying $1,231,60 a month this year and $1,321.04 a month in 2020.
Know Your Market
Talk to your realtor. Is the market working for you or against you. If its a sellers market you may be competing with multiple buyers and end up in a bidding war. Or the inventory maybe low. Don’t purchase a home just to own. Buying Real Estate is an investment and should be looked at as one as well. Ask your agent whats happening in your local market.
Whats Best for You?
The cost to rent a median priced home is about 27.7% of your income. It cost to buy a median priced home about 17.5% of your income. The best thing is putting your mortgage payment to work for you. The monthly mortgage payment is building equity, and its yours not a landlord. Of course I don’t have a crystal ball but it doesn’t look like home prices or mortgage rates will be going south anytime soon. Is it your time to buy real estate?