The Advantages of BUYING vs. RENTING in Northern Virginia; Either Way You’re Paying a Mortgage – Why Not Have It Be YOURS!

stencil.newletter-header (1)Buying a Home Requires Less Income Than Renting a Home (~20% less income)
If you are renting a home in Northern Virginia and you think you can’t afford to buy a home – THINK AGAIN – buying costs significantly less than renting.  This is surprising to most people, BUT YES, it generally takes less of your income to buy a home in Northern Virginia than it does to rent a home.  In fact, historically across the U.S. it requires 21% of the median income to purchase the median priced home.  This compares to 26% of the same income to rent the same home.  The difference of five points doesn’t seem like much, but it’s 19% of one’s income – no small amount.  In the Northern Virginia region it takes relatively more income to purchase and rent, because our housing cost is relatively higher than the U.S. average.  However, the spread is still the same as shown in the example below.  Most renters don’t realize this, but once they do, it opens up all types of fantastic possibilities for them in terms of home ownership and wealth creation.  I frequently remind renters, you’re technically paying a mortgage when you rent, it just happens to be the property owner’s mortgage.  Why not make it yours instead?

Could You Use an Additional $417/mo Now – Growing to Almost $600/mo by Year 5?
Here’s a real-life example of comparing the cost to rent versus the cost to buy the same townhouse in our region (Falls Church 22043).  How do I know?  Because I’m the owner of the rental property.  As shown in the table below, it takes $417 less per month to buy the subject home than is required to rent the same home.  The $417/mo is represented by federal and state tax benefits associated with mortgage interest and real estate tax deductions, but it’s still $417/mo extra take-home pay in the would be buyer’s pocket every month.  The U.S. tax code is written to benefit homeowners, not renters – take what is given to you.  What’s more, this $417/mo grows 45% to $600/mo by Year 5.  The growth is accounted for by calculating the difference between escalating annual rent compared to just the real estate tax, insurance and HOA dues with ownership.  Remember, buying a home usually involves a fixed-rate mortgage, meaning the principal and interest components of a mortgage never change.  This represents 76% of the total payment to own in the example below, leaving just 24% subject to escalation.  Conversely, 100% of the rent payment is subject to escalation each year.  This spread is an annuity that keeps paying you when you own.  However, when renting, this same amount is an annual pay raise for the landlord.
Rent vs Own FIN
Attention Renters – There are Serious Qualitative Advantages to Buying vs. Renting
For many people, owning a home is fulfillment of the American dream.  There is pride in ownership that exists and a sense of connection to the community.  Owning a home also provides a powerful pathway to wealth creation.  I’ll explain this wealth creation topic in next month’s R/Eview, but it’s safe to say the power of a declining loan balance coupled with the compounding effect of real estate appreciation is awesome.  This is the equity in your home.  Yes, there is repair and maintenance cost that comes with ownership, but it’s small when compared to accumulation of the monthly cash benefit and the equity accumulation.  Aside from the financial benefits, home ownership provides stability without frequent concern of having to move.  This stability has been proven to benefit a child’s development and performance in school.  Homeowners enjoy privacy often not experienced in rentals, or more so in apartments.  Lastly, many renters are surprised to learn access to a mortgage loan is not difficult, and large down payments are not required.  If you are a renter in Northern Virginia and home ownership interests you, an experienced agent can help evaluate your specific situation and desired outcome.  The agent should even have lenders who can pre-approve you same day for a mortgage loan.
Low Down Payment Options From 0 to 3.5% – Wide Range of Credit Scores
This is one of the most common misconceptions for home buyers in Northern Virginia. Buyers have all kinds of financing options available with little money down and against a range of credit scores.  For example, Conventional Financing requires as little as 3% down and the best interest rates are still available to borrowers with credit scores over 700.  FHA Financing can be secured with only 3.5% down and a credit score as low as 620. For first-time home buyers (or those who haven’t owned a home within the last 3 years), the Virginia Housing Development Authority (VHDA) even provides loans with up to 101.5% financing, meaning no down payment is required and your closing costs can be included in the loan.  There are even lending programs available to borrowers with credit scores as low as 580.
Executive R/Eview
It takes less income to buy a home in Northern Virginia than it does to rent a home.  The U.S. tax code favors home ownership rather than renting.  Homeowners enjoy a pathway to serious wealth accumulation, as well as significant monthly cash flow that would otherwise be lost to a landlord.  Home ownership has several qualitative benefits including stability, positive impacts on child development, and fulfillment of the American dream.  Many renters are under the misconception that a mortgage loan is out of their reach and it takes a large down payment to purchase a home.  An experienced agent can show you this is not the case.
“If you’re not prioritizing home ownership, you are making a costly mistake. Buying a home is the escalator to wealth in America. Homeowners are worth forty times more than renters.” 
– David Bach, AE Wealth Management

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