Help Renters Decide If They're Ready to Buy

This week, Rob Chrane and Brian Vieaux provide content to help renters decided if they are ready to start their homeownership journey.

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Seizing the Opportunity: Why Now Might Be the Perfect Time for Renters to Start Their Homeownership Journey

Rob Chrane

CEO & Founder, Down Payment Resource

Industry speculation around improved market conditions may be enough to move homeownership back to the top of the “to-do” list for many renters. However, the past few years of economic uncertainty have left their mark, and many may hesitate, wondering if now is truly the right time to make such a significant investment. Let’s take a look at why now might be the opportune moment for renters to take the plunge into homeownership and how loan officers can empower them with the tools they need for their journey.

Overcoming Timing Concerns

The age-old question of timing often plagues potential homebuyers. Should they wait for more favorable conditions, or seize the moment? We all know that market dynamics are unpredictable. Rather than betting on what interest rates will do, homebuyers should understand their full range of financing options, including down payment assistance (DPA), tax credits and bond programs, where available. In fact, in a higher interest rate environment, a bond-funded first mortgage may have a lower rate, plus homebuyers can get help with their down payment.

Homeownership also comes with many benefits, such as greater financial stability, tax deductions, freedom to personalize living space, and first-time homebuyers especially need to understand the advantages of building equity sooner rather than later. Additionally, purchasing now allows homebuyers to enter the market before home prices escalate further, as demand continues to outpace supply in many areas.

Making Mortgages More Affordable

The notion of affording mortgage payments might seem daunting, but with the right strategies, it becomes achievable. For example, house hacking, a popular concept among first-time buyers, involves purchasing a property and offsetting mortgage costs by renting out a portion of it. Whether it's investing in a smaller home, a multi-family property (1-4 units), or renting out spare bedrooms in a single-family home, house hacking offers a practical solution to affordability concerns.

As an added bonus, down payment help may be available. Using DPA to purchase a multi-family property has become a very hot topic lately , and about 30% of the programs in our database allow funds to be used for a multi-family investment. These assistance programs often require the borrower to complete homeownership and landlord-prep classes, which will help ensure long-term stability for new homeowners.

Leveraging Down Payment Assistance Programs

One of the most significant barriers to homeownership is saving for a down payment. The good news is there are over 2,300 down payment programs available to help alleviate this burden, and program providers continue to add programs to keep up with the pace of affordability. As a matter of fact, 135 new homebuyer assistance programs debuted in 2023, a 6% uptick from the previous year.

These programs, offered by government agencies, nonprofits, and even employers, provide grants, loans, or tax credits to help eligible buyers cover their down payment and closing costs. By leveraging these resources , renters can reduce the amount of money needed upfront, making homeownership more attainable.

Bottom line, innovative financial programs and shifting market dynamics presents an opportune moment for renters to transition into homeownership. By working closely with loan officers to explore creative affordability strategies and tap into available assistance programs, renters can confidently embark on their homeownership journey. Now more than ever, the dream of owning a home is within reach for those willing to seize the moment.

How to Decide if You Should Buy a Home Now or Wait?

Brian Vieaux

President & COO, FinLocker

Buy now or wait for lower mortgage rates? That's the question many prospective homebuyers have been struggling to answer this year. The Federal Reserve's attempt to reduce inflation has resulted in mortgage interest rates fluctuating in the mid-6 % to 8% range, and home prices have risen about 6% in the past year, resulting in a lack of affordable entry-level homes.

The combination of factors has led many prospective homebuyers to wait until mortgage rates decrease, with the 5% range being the most popular target. However, mortgage experts predict that more prospective homebuyers will enter the market once rates decrease, further driving up home prices.

Why buy now

For renters, buying now means that you can start building equity immediately.

A recent report shows that a typical homeowner who purchased a median-priced home in January 2020, assuming a 10% down payment and the prevailing 30-year fixed mortgage rate at that time, has attained $208,000 in total home equity today. Homeowners who bought in January 2013 have accrued $343K in total home equity today.

If you can answer yes to these three questions, now is a good time to buy.

Do you have excellent credit? Your credit score is one of the determining factors that a lender will use to calculate your mortgage interest rate. The best interest rates will be available to those with at least a 720 credit score. The median credit score for mortgage borrowers in Q4 2023 was 770, according to the Federal Reserve Bank of New York. If your credit report supports your history of on-time payments, you'll be considered a low-risk borrower, so you'll most likely qualify for the lowest mortgage rates the lender offers.

Have you saved enough for a down payment and closing costs? Depending on the loan program, you'll need at least 3.5% of your homebuying budget for a down payment and another 4% for closing costs. If you need financial assistance, ask your loan officer about down payment assistance programs in your city and state.

Are you planning to stay in the home for several years? Buying a home is a long-term investment. For the first few years, your mortgage payments have a higher portion of interest versus principal, so you'll want to find a home that serves your needs for the next 5-7 years. However, as home prices increase, you'll also be earning equity. If you find the right home now, you can always refinance when interest rates decrease.

Why wait to buy

If you answer yes to at least one of these questions, consider waiting to buy to be able to qualify for better interest rates.

Do you have poor credit? Mortgage lenders like to see homebuyers with a minimum credit score of 640. Your credit score should be at least 720 to qualify for their best interest rates. If you have a few missed or late payments on your credit report, you should wait a few months until you've reestablished a credit history showing on-time payments.

Do you need to work on your financial health? If your credit cards are maxed out, you'll have a high debt-to-income (DTI) ratio. Lenders like to see a DTI below 45%, which means you have a balance below $2250 on a credit card with a $5000 limit. If you're expecting a sizeable commission, bonus, tax refund or some other windfall that you can add to your down payment savings, wait until that money is in the bank and 'seasoned,' which means it is in your bank account for a few weeks and you can explain to your lender how the money was obtained.

Do you have a long-term rental agreement? Depending on your state, most landlords require tenants requesting to terminate their lease early to provide a minimum of 30 days written notice, pay an early termination fee, which could be a month's rent, and contribute to the advertising costs to find a new tenant. If you need to renew your lease and would like to buy a home in the next few months, ask your landlord if you can do a month-to-month lease while looking for a home.

The housing market is difficult to predict. Ultimately, the best time to buy is when you are financially healthy and have found a home that suits your needs for the foreseeable future that you can afford to purchase and maintain.

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