Ask the Expert: Should I Rent or Buy?
If you've been paying your rent on time for a while, you've probably considered if putting that money towards your own mortgage would be a better deal. It's a tough question for any first time home buyer. So, we went to an expert. We asked Clint Hammond, a mortgage planning specialist at Mortgage Network, Inc, to fill us in on how he helps his clients think strategically about the decision to move from renting to buying.
When does it make financial sense to stop renting and buy?
The rent vs buy discussion really starts with one simple fact:
You have to pay something to somebody to live somewhere.
So it’s really about your overall strategy and situation. Since everyone is different, it’s too difficult to make a definitive “rule of thumb” type statement as there will always prove to be exceptions to the rule. But a few consistent points do exist that should be considered.
- How much will I pay in rent and how much will I pay on a monthly mortgage payment to live in a similar home in the city where I live?
- How much will I need to have at the closing if I purchase and how much upfront money will I need to sign a lease?
- What do I look like as a borrower and can I be approved to purchase?
In Columbia, SC specifically, it is substantially cheaper on a monthly basis to buy rather than to rent. No, and low down payment options are out there for many borrowers, whether they are first time buyers or not, and the ability to negotiate seller paid closing costs all but puts you in a position of seeing very comparable out of pocket expenses for either situation. That usually leaves the third question as the true barrier to buying a home rather than renting in our current market. The only way to find this out is to talk to someone who can put a purchase mortgage strategy together and let them guide you through the process. If it turns out that you should rent, it’s because renting for some time is just part of the plan to eventually buy.
How long should you stay in a house to make it worth buying?
There is no simple answer here just like with the “rent v buy” question. if you’re going to be somewhere for a year, it still may make sense to buy, so long as the length of time you plan on being in one particular place is part of the plan going in. Obviously, the longer you’re planning to be there, the more sense buying makes, but just because you may be in a temporary situation it doesn’t necessarily rule out buying as your best option. It just goes into the strategy and is accounted for with how the mortgage would be structured.
What should you look for in the market when making your decision?
I’ve always said the financing side of the process is the most important and should be done first and foremost. If you put a strategy together first, it’s usually very easy at that point to find a home that fits the plan. Finding the house first often leaves your hands tied when it comes to putting the financing together after the fact. Finding a house to fit the plan is always easier than finding a plan to fit the house. So once this part is done and over with, then the other market decisions come into play.
- What does my resale look like in 3, 5, 7 years?
- What schools am I zoned for?
- Is the house in a floodplain?
- Are there any HOA fees associated with the house?
- What characteristics of the home make this marketable to the most people moving forward whenever I would be selling?
How much should the location of houses in your price range come in to play for your decision?
This is a much better question for a Realtor, but “Location, Location, Location” is a real estate cliché for a reason. Identical homes in different areas will see substantial differences in price. So, it always comes back to having the right strategy from the beginning. Where you need to be is important, and what you can afford is too, but ultimately you have to make a concession at some point. You either reduce what your housing needs/wants look like in order to get something where you want to be at an affordable number, or you determine that shifting the search to another area is required because your housing needs trump the location. So it’s all a strategy that comes with putting the best overall, big picture game plan together.
What other intangibles do you recommend your client looks at?
Sorry for the redundancy, but when something is so important, it warrants repeating.
Every single prospective home buyer is different regardless of how much they may appear to be the same on the outside or at first glance.
So the intangibles for each will be different from the last, but when you work with a solid mortgage planner, you don’t just submit an application for a pre-approval, you actually approach the whole thing from that 10,000 foot view and start narrowing it down as you formulate your strategy for a home purchase.
Where are we right now?
Where do we want/need to be in 3 months?
Where do we see ourselves in 5 years?
What’s the best way to ensure that we are getting the highest and best use of our dollar in this process?
Those things are the key points, the cornerstone of a good mortgage conversation, and that tends to flush out all the fears and anxiety that a buyer will have and replace them with confidence that we are getting the most efficient use of the resources at our disposal. A good solid plan carried out to perfection always leads to the right outcome, even if it’s a different outcome than what you initially started working towards.
Clint Hammond is a mortgage planning specialist at the Mortgage Network, Inc. Clint has over a decade of experience in the industry and was named Mortgage Professional of the year in 2013 and 2014 by the Greater Columbia Home Builders Association.