Is it better to rent or to buy? That depends on where you live and whether you think long-term or short-term. In every state across the country, homeowners with a mortgage pay more per month than renters, but the difference is far more drastic in some than others, according to a CNBC report on U.S. Census data from 2013-2017. Renting in New York State is roughly $870 cheaper than buying. The disparity is less drastic in Illinois — owners pay around $681 more per month than renters. Florida owners pay just $355 per month more than renters. The biggest disparity is in New Jersey, where it costs $1,149 per month to own a home than rent. It’s the lowest just an eight hour drive away in West Virginia, where it costs just $316 more to own than rent. West Virginia is also the cheapest overall state to rent and own and is less than half what it costs to rent and own in some of the more expensive states in the country. Today, more than two-thirds of renters plan to keep renewing their leases due to their finances, up from 59 percent just two years ago.
(Photo: Max Ortiz, The Detroit News) Detroit — Nearly 1,300 home buyers took out mortgages in the city in 2018, a number not seen here since before the Great Recession. More than six years later, most home sales still are all-cash, and many Detroiters cannot obtain a loan. “Undoubtedly, Chemical’s presence will help residents access these tools.” (Photo: Max Ortiz, The Detroit News) Bertha Alexander relied on one of those tools after she lost her home insurance on the Morningside bungalow she purchased through a land contract in 2013. Since then, the bank has joined other efforts to increase financial literacy and lending. Maurice Cox, city of Detroit planning and development director, said Chemical Bank's move to Detroit is an endorsement that the city's recovery can be sustained. In 2018, residential properties gained more than $400 million in value and 90 percent of Detroit’s 194 neighborhoods saw increases in residential home values. While it is down from 97 percent in 2014, according to the Urban Institute, the national average is 36 percent. It offers low-interest mortgages and second loans up to $75,000 above the property’s appraisal for repairs. “We want people to know you can get a mortgage in the city of Detroit,” Pate said. Quicken Loans, Detroit's largest home lender in 2018 with 439 mortgages, provided $5 million to partner with Home Depot to renovate 70 homes in the city since 2015.
But are these newfangled alternatives to reverse mortgage loans safe—and sensible? In a shared equity agreement, the company gives you cash in exchange for a portion of the upside in the home’s value. Under the agreement, the company gives you cash in exchange for a portion of the upside in the home’s value at some point in the future. In essence, they become co-owners of your home (though you will still continue to pay the mortgage and property taxes). Shared equity agreements have a fixed term, often as little as 10 years but sometimes as long as 30. At the end of the term, you have to pay back the equity you received, plus the company’s share of appreciation, which most people do by selling the home. Converting to a rental Another option is called a sale-leaseback, offered by New York City-based start-ups Irene and EasyKnock. Then they rent your property back to you for as long as you want. Sale-leaseback companies also charge fees, of course. To repurchase your home, you’ll pay the funding amount you initially received, plus a premium of 5% in the first year or 2.5% in subsequent years.
Buy or rent? Find mortgage rates for first-time buyers (Jan 26th, 2019) Ongoing costs Once you’ve moved in, you’ll need to be able to comfortably pay all those expenses that renters don’t have to worry about. So what are those costs? Should you buy now? Mortgage insurance if your down payment is less than 20 percent, most mortgage lenders require you to purchase mortgage insurance. Government-backed mortgages also have mortgage insurance costs. Every month, an amount to cover your annual insurance and property taxes is added to your principal and interest payment. And, by the time your place is 25 years old, you should each year be setting aside 4 percent of the purchase price. Presumably, you’d have had to rent a home. Landlords typically charge each month between 0.8 percent and 1.1 percent of a home’s value.
Ms. Hering’s case highlights how a flavor of mortgage once panned for its role in the housing meltdown a decade ago is making a comeback. Lenders issued $34 billion worth of these unconventional mortgages in the first three quarters of 2018, a 24% increase from the same period a year earlier, according to Inside Mortgage Finance, an industry research group. Even so, some regulators, consumer advocates and others worry that the growth in this type of mortgage and rising competition to make such loans could lead to renewed risks for the housing market. But traditional lenders, which are doing less conventional business as interest rates rise, are turning to borrowers with harder-to-document creditworthiness as a new source of revenue and are helping to drive the growth. Tom Jessop, the loan consultant at New American Funding who handled Ms. Hering’s loan, said he has seen demand for unconventional loans double over the past 18 months and they currently makes up more than one-third of his business. “As more companies enter the space you’re going to see more competition, and with more competition, you’re going to see loosening of underwriting” standards. Photo: Jessica Pons for The Wall Street Journal In many unconventional loans for which it is difficult to document income, borrowers use bank statements like Ms. Hering did to show they are making money. Newsletter Sign-up Ms. Hering, who is 30 years old, received a loan at a rate of just over 6% for the first five years; it adjusts after that. She used the money to fully buy out her grandfather’s house in San Clemente, Calif. She jointly inherited it with other relatives and said she needed a loan to pay them for their shares of the property. “It was scary because if it didn’t work out then I would have had to give up the house, but I was determined to keep it,” said Ms. Hering, who is renting out rooms in the house to help pay the mortgage.
The shutdown effect is obvious if you're a government worker suddenly trying to buy a home with IOU's – but, otherwise, why would your mortgage application be affected? Other loans may require verifying paperwork from the IRS – for example, verification of income – before loan processing can proceed. How To Keep the Home You Already Have Government workers who already own homes have a more fundamental cash flow problem. Your lender may also be able to provide a short-term loan at reduced interest rates. It may be making mortgage payments when you're hit with a financial crisis, making unexpected home repairs, or getting into a bidding war to buy your first home. Start by establishing an emergency fund during better times, so you don't have to rely completely on credit to get through a true financial crisis. If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, join MoneyTips. Make all payments on time and keep other debts as low as possible. You'll have to prioritize debt and possibly make only minimal credit card payments while you devote existing cash toward your mortgage. Did we mention the importance of an emergency fund?
Why do the states with housing’s highest “affordability” measurements — much-discussed but perhaps dubious economic yardsticks — have more borrowers who can’t make their mortgage payments? The state’s home listings are priced at 55 percent of normal “affordability,” according to one housing-cost index from the National Association of Realtors. That ranks next to last nationally. I loaded my trusty spreadsheet with various economic and housing markers — plus the recent ranking of state rankings I compiled — to ponder how housing “affordability” translated to other measurements of life. Now to be fair to those “affordable” states, homeownership (tracked by the US Census Bureau) paralleled affordability: averaging 69 percent for states with the highest Realtor grades vs. 63 percent for the least affordable. The same hiring spree that put them in a home-buying mood also makes housing costlier to buy. A broad-based cost-of-living scorecard from the state of Missouri gave most “most affordable” states an average No. 37 for least affordable. 37 for least affordable. And it’s not a small gap: thin 0.2 percent population growth for “most affordable” states in 2018 vs. swifter 1 percent for the pricier locales.
For the past decade, it’s been almost impossible for aspiring Detroit homebuyers to get mortgages. But that appears to be changing. The city notched a real estate milestone of sorts last year, recording more than 1,000 new home mortgages in 2018. Its data show that 1,221 homebuyers purchased homes with traditional mortgages last year. The land bank’s Rob Linn says it’s the first time the city has reached more than 1,000 mortgages since the 2008 financial crisis. Subsequent waves of mortgage and tax foreclosures decimated Detroit’s housing market and rendered traditional mortgages almost non-existent, with banks often refusing to lend even to qualified homebuyers. But Linn says there’s been a steady upward trend in new mortgages since 2014, when the city recorded only 490. “In the housing market, success begets more success. “When a resident lives in an area where there are mortgages, it becomes easier for them to get their own.” Linn says another good sign is that mortgage-backed homebuying is spreading to more neighborhoods. Land bank data show that home sales prices are on the rise, too—jumping from around $33,000 in 2014 to more than $74,000 in 2018.
The remainder of this post will go over the ways in which owning property or a business can impact your mortgage transaction. Being on the Title to a Home When it comes to mortgage programs for first-time homebuyers, it does actually matter whether you’ve had ownership in a home before. You have an interest if you own 1% or 100% of the property. Owning Your Own Business Another aspect where ownership interest might come into play is if you own your own business. If you have less than 25% ownership, while the documentation necessary can vary by loan type, there are some things to think about. You may provide a statement regarding the extent of your ownership in the business (e.g. It’s also a good idea to have 2 years of tax returns available with your Schedule E, which indicates other income and losses. For this reason, mortgage lenders are very interested to make sure that the condo association is in good shape. In a condo project, single-entity ownership restrictions are as follows: 2 – 4 units: ownership in not more than one unit 5 – 20 units: ownership in not more than two units 20 units or more: ownership can’t exceed 20% – 25% of the project, depending on the investor in your mortgage Ownership interest can play a big role in many areas of a mortgage transaction. But now that you know how it works, perhaps you’re ready to get started on buying or refinancing a home.
The problem is that the pent-up demand is still expected to continue to exceed supply, even with more homes for sale. NAR predicts that existing home prices will rise 2.5% in 2019, to a median of $265,200, compared with a 4.7% rise in 2018, to $258,700. Mortgage rates will continue rising From the beginning of 2018 to mid-December, 30-year fixed mortgage rates went up a little less than three-quarters of a percentage point, to around 4.75%. Fannie Mae’s forecast is for an increase of just 0.1 percentage point. For example, in NerdWallet’s daily mortgage rate survey, the 30-year fixed-rate mortgage started the year averaging 4.09%. Affordability still a concern As home prices and mortgage rates rise in tandem, home buyers find it harder to afford homes. New homes get smaller From a home buyer’s perspective, most markets need more houses for sale, and they need to be on the affordable end of the price scale. Lending standards ease a little Mortgage lenders learned an enduring lesson in the housing crisis a decade ago: Make sure borrowers can repay their loans. Borrowers choose ARMs because the initial rates on adjustables are lower than the rates on fixed-rate mortgages. In October, 8.2% of mortgages were ARMs, according to Ellie Mae; 12 months earlier, ARMs had a 5.5% share of mortgages.