When Maggie Flanagan, a lawyer renting a town home on Capitol Hill with two other attorneys, decided she had outgrown her home and wanted the space of a one-bedroom apartment, she assumed she would be renting again. Her hunt for an apartment turned up the dismaying prospect of rents in the $2,400-to-$2,600 range for a one-bedroom place in downtown Washington.
“A friend had purchased a condo, and so I decided to look into buying,” Ms. Flanagan said. “I was pretty shocked that because of the low interest rates, I was able to afford a condo downtown. I can even walk to work, and my housing payments are less than the rent would have been for the same type of place.”
While the decision whether to rent a home or become a homeowner is both an emotional and a financial choice, the combined factors of rising rents in the D.C. area and rock-bottom interest rates may be skewing the decision for many current renters toward buying. Even so, buying a home is an individual decision that should be based on a sound review of finances and future plans.
According to Trulia Trends, the research arm of the real estate website, rents in the D.C. area rose by an average of 5.2 percent between May 2011 and May 2012. The Northern Virginia Association of Realtors (NVAR) said rents were up by 9.6 percent in Arlington from last year to this year and up by 4.5 percent in Fairfax County. In Maryland, the Greater Capital Area Association of Realtors said rents rose by 4.6 percent in Montgomery County between the first quarter of 2011 and the first quarter of 2012.
“Rents have gone up substantially in the last year or so because of high demand,” said Pat Kline, an associate broker with Avery-Hess Realtors in Springfield and the 2012 chairwoman of the NVAR board. “A lot of first-time buyers are contacting Realtors because their rent is being increased again and they want to look into the possibility of buying a place.”
Financial planner Larry Rosenthal, president of Rosenthal Wealth Management in Manassas, Va., said the No. 1 issue to evaluate when deciding whether to rent or buy is cash flow. He said most financial planners recommend buying a home with a fixed-rate mortgage in order to have a locked-in housing payment rather than the uncertainty of rising rents.
“In most cases right now, regardless of the price range, your mortgage payment is likely to be lower than your rent,” said Mark Goldstein, president of Capitol Funding LLC in Bethesda. “Of course, that’s with good credit at the lowest interest rates available today. If you have less than perfect credit you may want to wait.”
Mr. Goldstein said an FHA loan may be an option for a borrower with a low credit score, but because of the addition of mortgage insurance payments, the housing payment may not be less than rent.
Each potential homebuyer needs to consider several aspects of buying a home before making the choice between renting and owning. The first consideration should be how long you intend to stay in the area.
“If you plan to move or think there’s a strong possibility of a transfer in one or two years, you are probably better off renting,” Ms. Kline said.
Mr. Goldstein said buyers should plan on staying in their new home for at least five years to recoup the cost of buying and to build equity.
“If you plan to corporate-hop or want to relocate, you may not want to buy right now,” Mr. Rosenthal said, “but even then, you can think about the option of turning the home into a rental property.”
NVAR recently launched its Ask Me! campaign and a new website (www.AskMeNVAR.com) to encourage prospective sellers and buyers to contact a Realtor to learn about options in the local market and share recent housing data. Ms. Kline suggested contacting a Realtor for information about homes for sale and a lender to discuss financing options.
“A Realtor can tell you about what’s available in areas that you may not know about that are possibilities depending on where you work,” Ms. Kline said. “A lender can prequalify you so that you know your price range. Sometimes people love where they are renting but find out they cannot afford to buy there, while other times people are encouraged to find something better than they thought they could afford.”
Given the price declines in many housing markets, many renters are wary of buying a property that could drop in value.View Entire Story
By Rand Paul
Obama acts as though we no longer have a Constitution
Independent voices from the TWT Communities
A politically conservative and morally liberal Hebrew alpha male hunts left-wing viper
Sometimes life requires a paradigm twist.
Benghazi: The anatomy of a scandal
Vietnam Memorial adds four names
Cinco de Mayo on the Mall
NRA kicks off annual convention
California wildfires wreak havoc