Rent or Buy? FHB (First Home Buyer)
For the past few years, housing market has been flat mainly because of credit loss of many potential home buyers being stuck with high monthly mortgage payment. Constrained to financial contraction and unable for new financing had many of household to become renter. Insurgency of many renter prompted demand of rental apartment building. Responses to this new wave of migration had many developers choose to build more rental project than condominium and townhouse.
American dream is characterized by owning a house. Purchasing the house implies not only security but financially rewarding in the horizon. Let’s take an example of a renter paying $1,500 for the rent over 30 years. This yield $540,000 for the total rents paid even if we assume that there is no increases in the rent over the 30 years. In the case of owning the house and paying the mortgage mean that the money paid is held in the form of equity. When it gets paid off, you will own the house. But the renter still would have to pay the rent continuously.
According to NAR (National Association of Realtor), 33% of purchaser was by first time home buyer (FHB) last year, 2016. They forecast the proportion will be going up to 55% by next year. Outlook is promising for realtor. It is also good news for the consumer. Due to improvement in economics in general including healthy labor market and realization of still good mortgage interest rate, numbers of FHB are increasing. Consumers are confident in real estate market performance in the past since the 2006 on. Among others, the Millennial generation – in their late 20’s to late 30’s age bracket – has hurt mostly. Because many Millennial generation work and live in the city, they hurt by high rent. They now seek to own their housing. This could be a factor that support the NAR’s forecast for next year
Biggest hurdle for the FHB, especially young one, is to get qualified for the loan. In addition to show pay stubs in loan application, borrowers have to have down-payment, usually 10% of purchasing price. So when FHB are trying to save for something big like buying their first home, friends and family may step in and try to help by offering them money for the down payment. . If they are getting any financial gift to help with down payment, that is good for them. Other source of down payment is personal saving. To help ease providing down payment, many commercial banks has recently introduced flexible Low Down Payment for this type of consumer. For some qualified applicant, there exist only 3% of Down payment is required for new loan with as low as credit score of 620.
American’s dream of owning a home is alive and well.
Translated by Cham