Las Vegas renters – Stop it! There are 2.14 million people living in our Las Vegas Valley. 975,000 of those people are renting. 245,000 of those renters can afford, right now, to purchase a home. Let’s round those numbers off and say it a different way. One out of four renters in the Las Vegas Valley has the ability to purchase a home and save a ton of cash. Yet they continue to rent. Why?
If you’re currently renting an apartment or even a home, then you are aware of the steep costs associated with renting. According to recent studies, Americans spend 30% of their monthly income on rent, while those who live in their own homes spend only 15% on mortgages. Now obviously all of us would prefer to own homes, but one of the biggest roadblocks is the down payment. For most of us, it’s difficult to know when you’re in a suitable situation to take on such an expense. So timing is everything when it comes to making a move like this. LasVegasRealEstate.com to the rescue, let’s break down what mortgage experts think about the whole issue of switching from renting to homeownership. We want you prepared if you find yourself wanting to make such a transition.
Las Vegas Renters – Stop it! Know whether you are ready or not to buy a home
First let’s go over liquidity, meaning the amount of money you have at your disposal. Generally, those who have fewer debts are considered liquid enough to afford a down payment. For example, your car is paid off or nearly so, if you have student-related expenses those are taken care of. Essentially a significant portion of your finances is not being spent on debts. Your current debt position should tell you whether you are ready to make that move or not.
The difference between being ready and thinking that you’re ready
You have been looking forward to a place you could call yours for ages now. It’s understandable that the decision to buy a home is at times bothering you. Most buyers find themselves making instinctive decisions, only to find that they were never ready to make the move when they did. There are many financial commitments that come with owning a house. It is important that you keep them in mind when making your final purchase decisions. A home inspection and appraisal will be required. There are hidden costs you might not be aware of and the financial responsibility of taking care of a home requires dedication. You, therefore, need to be very sure about what you want before diving in.
Las Vegas Renters, how do your finances affect your moving plans?
Some of us move around a lot, so it doesn’t make sense, financially speaking, to buy a home in one area, only to move to another city or part of the country within the year. In addition, places such as California are too expensive for homeowners, and moving out of the area is implausible due to work and family demands. So take into consideration where you want to buy your home and how this will impact you with respect to work and your possible need to remain flexible.
How much of your monthly income should you pledge towards a mortgage payment?
According to experts, if your mortgage costs 30% or a little less of your monthly income, then that is a feasible rate. You want to live comfortably and enjoy the trimmings of modern living without having to sacrifice too much to your mortgage payment. Think about the percentage you would be comfortable paying as part of the mortgage. The industry has no set percentages, and some lenders are flexible enough to allow you to pay out what is within your comfort zone. Here’s where it helps to have a very well rounded understanding of your general monthly expenditures.
Homes with down payments of less than 20%
Some of us think that when the percentages are too low, that there’s a catch in there somewhere. We encourage having a keen eye when going over the final paperwork however, remember it’s perfectly plausible for numbers to vary based on quite a few variables so be analytical and thoughtful when reviewing. Avoid going too low on the percentages because that would translate to high installments, balance is key.
To rent or to buy: where is the financial edge?
A recent financial comparison of renting vs. buying was published by MBS Highway. The subject was purchasing a $300,000 home vs. renting the home for 9 years. The hardcore real numbers were eye-opening.
The monthly cost to own the home, (monthly P&I, Property Taxes & Insurance, Maintenance & Repairs) came in at $1,816 using a 4.25% interest rate with a 4.481% APR. After nine years, the total cost of home ownership was $197,965.
The monthly cost to rent the home, (monthly rent & $23 per month in rental insurance) began at $1,587 per month and increased 5% per year to $2,345 per month in year 9. (FYI, rent rates in Las Vegas are rising faster than 5% currently and the forecast for several years to come is 5%+.) The total cost of renting the home for nine years was $209,431.
The difference between owning and renting the same $300,000 home over nine years was $11,466. The renter will shell out $11,466 more to live in the same home for nine years! Renters, can you really afford that? Year after year?
But wait, it gets better, the home appreciated $48,743 in value during the nine years. The homebuyer pockets that at the sale. As a consolation prize, the renter gets his/her security deposit back, maybe…
But wait wait, it gets even better, the homebuyer is making a mortgage payment every month. That means he/she is lowering the mortgage payoff balance over the nine years. The reduction in mortgage principal on the loan is $48,835. No consolation prize here for the renter.
Bottom line, the homebuyer nets a gain of $82,119 after only nine years ($11,466 less monthly expense, $48,743 in appreciation, $48,835 in mortgage principal reduction.)
Las Vegas Renters – Stop it! Focus on saving for a down payment and go buy a home!
If you want to talk with a mortgage lender about qualifying for a home purchase, we recommend highly our Preferred Partners: Lenders. These lenders are professionals we’ve worked with for many years. They are terrific! Give them a call and get started. What do you have to lose? Just $82,119 over the next nine years. Can you really afford to do that?
If you want to talk with a Realtor in Las Vegas, we recommend our Preferred Partners: Residential Realtor. Jack and his team have been selling real estate in Las Vegas since 1974. He’s the only Realtor in Las Vegas to have ever won the Distinguished Service Award from the National Association of Realtors. The only one! Call these folks when you are making one of the biggest purchases of your life!
Thank you for reading our post, “Las Vegas Renters – Stop it!” For more Las Vegas home Buyer tips, information on moving to Las Vegas, Las Vegas real estate market news, information on Las Vegas homes for sale, buying a home in Las Vegas, or general real estate information please visit our website www.lasvegasrealestate.com.