If prospects are considering how they’ll be living in 2016—whether to keep on renting or make the move toward homeownership—then they’ve paid attention to the rising Federal Interest Rate and how it will impact mortgage rates as well. Maybe potential buyers have been scared back toward their apartment based on the specter of higher mortgage payments for a new home.
Don’t let rising rates push a potential buyer away. Monthly mortgage payments aren’t the only thing that will be increasing in the near future. Rent.com surveyed more than 500 landlords to create a rent-rate projection for 2016, and came to the conclusion that they’ll increase 8 percent across the year. Compare that to mortgage rates, which are predicted to rise to—using a higher estimate—5.1 percent.
Renting will always save money in the here-and-now, which is why so many choose to stick with it rather than make the jump to homeownership. Here are three reasons that sharp realtors can use to finally lure worried renters toward a new home.
It’s fairly common knowledge that owning a home is a worthwhile investment over a long period of time. But are your prospects aware that buying a home has an almost instantaneous impact on their net worth?
The media homeowner is worth nearly $175,000, according to The Federal Reserve Board’s Survey of Consumer Finances, compared to just $5,100 for a non-homeowner. Skeptics will try to explain this away by labeling the average homeowner as higher income and older than the average buyer. This is partially correct, but median net worth remains raised considerably across all demographics. Younger buyers, including those with school debt, have a median net worth double that of their renting peers. Even those in the lower 20 percent of the income bracket are worth more when they own a home.
In short, young prospects should be encouraged to see that buying a home isn’t just a good long-term investment, but a good short-term one as well. If they’re still shaken by a daunting down payment—compared to their regular monthly rent—let them know how tax-free cash gifts from relatives can be used to pay that initial investment.
This is more well-known to potential homebuyers, but it should still be emphasized that owning a home is a great long-term investment, when considered for equity and resale value in the more distant future.
Less appreciated is how much a home saves compared to renting in the long haul. Most expect to ultimately spend more when buying a home instead of renting, but the opposite can certainly be true. This Freddie Mac case study shows how the owner of a $200,000 loan with a 4.5 percent mortgage rate (the predicted average for 2015), will ultimately save $90,000 across a seven-year period, compared to a $1,400-a-month rental. That’s a relatively quick return-on-investment if your down payment is $10,000 (as it was in this example).
Even if they understand the long-term benefits of buying a home, some prospects may never even look for a home if they assume rates will be so much higher by the time they close. Explain to these concerned clients that options exist to protect them from rising rates.
Long-term interest rate locks can guarantee a home buyer their current rate, usually up to six months from the time they apply. This doesn’t require them to own a home at that moment, and allows them an extended period in which to consider homes. This option is a relief to nervous prospects, who can now take their time when looking for the perfect home, rather than rushing to make a hasty decision based on current rates.
Sympathizing with the concerns of renters, especially young buyers, can help knowledgeable realtors convert more to homebuying, even in the current climate where interest rates and mortgage rates are on the rise. Offer them these pointers, explaining how buying instead of renting can be a valuable investment and cost-saver, in both the long and short term.