If you’re following along with the news today, you’ve heard about rising inflation. Today, inflation is at a 40-year high. According to the National Association of Home Builders (NAHB):
“Consumer prices accelerated again in May as shelter, energy and food prices continued to surge at the fastest pace in decades. This marked the third straight month for inflation above an 8% rate and was the largest year-over-year gain since December 1981.”
With inflation rising, you’re likely feeling it impact your day-to-day life as prices go up for gas, groceries, and more. These climbing consumer costs can put a pinch on your wallet and make you re-evaluate any big purchases you have planned to ensure they’re still worthwhile.
If you’ve been thinking about purchasing a home this year, you’re probably wondering if you should continue down that path or if it makes more sense to wait. While the answer depends on your situation, here’s how homeownership can help you combat the rising costs that come with inflation.
Homeownership Helps You Stabilize One of Your Biggest Monthly Expenses
Investopedia explains that during a period of high inflation, prices rise across the board. That’s true for things like food, entertainment, and other goods and services, even housing. Both rental prices and home prices are on the rise. So, as a buyer, how can you protect yourself from increasing costs? The answer lies in homeownership.
Buying a home allows you to stabilize what’s typically your biggest monthly expense: your housing cost. When you have a fixed-rate mortgage on your home, you lock in your monthly payment for the duration of your loan, often 15 to 30 years. James Royal, Senior Wealth Management Reporter at Bankrate, says:
“A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same. That’s certainly not the case if you’re renting.”
So even if other prices increase, your housing payment will be a reliable amount that can help keep your budget in check. If you rent, you don’t have that same benefit, and you won’t be protected from rising housing costs.
Investing in an Asset That Historically Outperforms Inflation
While it’s true rising home prices and higher mortgage rates mean that buying a house today costs more than it did even a few months ago, you still have an opportunity to set yourself up for a long-term win. That’s because, in inflationary times, you want to be invested in an asset that outperforms inflation and typically holds or grows in value.
The graph below shows how the average home price appreciation outperformed the average inflation rate in most decades going all the way back to the seventies – making homeownership a historically strong hedge against inflation (see graph below):
So, what does that mean for you? Today, experts forecast home prices will only go up from here thanks to the ongoing imbalance of supply and demand. Once you buy a house, any home price appreciation that does occur will grow your equity and your net worth. And since homes are typically assets that grow in value, you have peace of mind that history shows your investment is a strong one.
That means, if you’re ready and able, it makes sense to buy today before prices rise further.
If you’ve been thinking about buying a home this year, it makes sense to act soon, even with inflation rising. That way you can stabilize your monthly housing cost and invest in an asset that historically outperforms inflation. If you’re ready to get started, let’s connect so you have expert advice on your specific situation when you’re ready to buy a home.
Check out some tips from the experts below!
Once you’ve applied for a mortgage to buy a home, there are some key things to keep in mind. While it’s exciting to start thinking about moving in and decorating, be careful when it comes to making any big purchases. Here are a few things you may not realize you need to avoid after applying for your home loan.
Don’t Deposit Large Sums of Cash
Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
Don’t Make Any Large Purchases
It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.
Don’t Co-Sign Loans for Anyone
When you co-sign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count the payments against you.
Don’t Switch Bank Accounts
Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
Don’t Apply for New Credit
It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), it will have an impact on your FICO® score. Lower credit scores can determine your mortgage interest rate and possibly even your eligibility for approval.
Don’t Close Any Accounts
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those aspects of your score.
In Short, Consult an Expert
To sum it up, be upfront about any changes when talking with your lender. Blips in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
You want your home purchase to go as smoothly as possible. Remember, before you make any large purchases, move your money around, or make any major life changes, be sure to consult your lender – someone who’s qualified to explain how your financial decisions may impact your home loan.
As the real estate market changes, it’s important to have a running start on your home buying journey.
Here are three things to keep in mind — from mortgage rates to buying power — as you navigate the housing market.
What’s going on with mortgage rates?
As consumers, we have been spoiled with historically low interest rates that held out for an uncommonly long time. As interest rates begin to fluctuate, it is common to feel concern, especially for first-time home buyers.
Understanding the cause and effect behind rate increases can help reduce worry over market changes. Interest rates directly influence a buyer’s buying power. Real estate agents can help you understand what this means and what steps you can take to better prepare for it.
I often advise clients to check with the financing institution with whom they have a working relationship. This institution will already have your financial history and a personal gain in maintaining your business. They are best equipped to help you understand your buying power.
Know your buying power
Increased interest rates will increase mortgage payments, and this ultimately influences how much buying power you have. Knowing your buying power is an important factor when it comes to entering the housing market.
It is especially important to understand what you can afford monthly (in terms of payments) and how much of a down payment you need to get the monthly payments where you need them. Many people would rather look for lower costs vs. having to produce more of a down payment, but it is always good to have options.
Don’t be afraid to shop lenders
I have a working relationship with several lenders, and I encourage my clients to shop around for the best rate when going through the pre-approval process. A home is one of the largest purchases you will ever make, and even though refinancing is an option later down the road, you should feel confident in your purchase and the process of paying it off for the foreseeable future. Plus, it is always in the buyer’s favor to come to the market prepared.
It’s no secret that purchasing a home can be a daunting task for many. From the initial saving for a down payment to completing the necessary paperwork, the process of obtaining a decent mortgage can be quite involved.
While buying a house can be an intricate process, there are undeniable benefits to owning your own home. To begin with, having ownership of your own place means that you are building equity and paying monthly for something that builds equity. That is, the money you pay for your home mortgage each month isn’t completely lost.
Furthermore, purchasing your own place gives you the creative freedom to paint, renovate, and build onto the structure as you see fit. Owning a home means there are no landlords telling you what you can and cannot do within your own living space.
Although purchasing a home has many more benefits than renting, there are quite a few factors that can hold someone back from taking the leap. Whether you need time to rebuild your credit or you would like to save more for a down payment, these criteria do not have to prevent you from living in your dream home.
Now, you don’t have to wait for your finances to align perfectly to reside in the home that you want to purchase one day. There is a new and innovative program that provides people the ability to rent a home before they purchase.
Renting to own is not a new concept; however, this process has gained an unsavory reputation in recent years. Now, there is a company putting a new age spin on the old concept of renting to own. Instead of renting to own straight from a homeowner, homebuyers can now rent from a reliable company.
On top of that, this company is ready to help you in your journey to homeownership by providing guidance on topics such as saving for a down payment and credit recovery. Have you been thinking about purchasing a home but are not in a place to do so yet? Check out this new spin on renting to own your own home!
Why Renting to Own is Better
While the benefits of owning a home over renting are undeniable, there is something to be said about waiting until you are fully financially ready. The more you can put towards a down payment often means the less you have to pay in additional fees and interest.
As stated by Experian, “For a conventional mortgage, traditional wisdom says to save up 20% of a home’s purchase price for a down payment. A down payment of that size reduces interest costs and means you won’t have to pay for a mortgage insurance policy that covers the lender if you are unable to keep up with loan payments.” This leads us to our first point of why renting to own is a great option.
You Can Buy Once You’re Prepared.
Renting to own from a supportive company will give you the time you need to financially prepare for your first home. In addition to saving for a down payment, many people feel more comfortable going into homeownership with an emergency savings. Renting your home now with the idea of purchasing later can give you the time you need.
You’ll Be Living In Your Future Home.
You’ll have the best of all worlds with this option, as while you’re “renting” your future home, you’ll be putting money aside for its purchase at a future date. This is amazing because you can test out living in a home before you commit to buying it! In addition, if you decide to purchase the home, you won’t have to arrange a big moving day since you will already be living there.
You Can Walk Away.
There are many reasons that can lead an individual or family to be unsure if they will be living in the same area within the next one, two, or even five years. Renting to own can give you the option to begin moving towards purchasing a home without committing fully just yet. In the end, you don’t have to purchase the home if you decide against it.
How to Get Started
Are you interested in learning more about the new renting-to-own process? Fortunately, the path to renting to own is much more simple than the process of applying for and obtaining a mortgage! Contact Matt Braun for more information about how to rent to own your dream home. You may also reach out to him directly through email at [email protected]