With the global pandemic and other factors in our world, renting and buying properties today brings up many questions. ReFis are continuing to boom. But, the COVID-19 pandemic continues to alter the United States economy.
For those who wanted to take the leap from renting to buying this year, their plans are quickly changing. The pandemic has hindered the path of homeownership for 43% of renters ready to buy.
Keep reading to learn how you can support renters. And, cultivate a meaningful conversation about renting and buying in the current climate.
Rent vs. buy
While many mortgage leads may be leaning toward renting right now, the question of renting or buying may come up. Be prepared to educate your prospective clients on the differences between renting and buying. Make sure they know that you are on their side. And, you will help them decide what is best for their situation.
After all, housing is probably one of their largest expenses. When your clients decide between renting or buying, many factors come into play. Their financial situation, the local housing market, and plans for the future all are important considerations.
Help your prospective clients understand that their financial situation needs to be clear before any decisions are made. What is their credit score? How much outstanding debt do they have? How much money do they have in savings for a down payment? What is their current monthly rent or mortgage payment?
Once they realize whether they are comfortable financially or not, you can guide them to the next step.
In general, Freddie Mac finds that homeowners are more financially comfortable than renters. Buying a home is a key long-term investment. However, owning a home will not necessarily improve overall finances. With this knowledge and more, you will be able to support your customers’ in their unique circumstances.
Know the housing market
This may seem obvious, but as a loan officer, it is necessary for you to understand the ins and outs of your local housing market. Become an expert! This way, you are aware of any changes and confidently answer your client’s questions.
The housing market is hyper-local. So, your clients need to do their research on the specific neighborhoods they may want to reside in. With your guidance, they consider what homes are selling or renting for, and see how competitive the market is.
Would they be able to comfortably afford a mortgage payment in their desired neighborhood? Or, is paying rent a better financial decision?
Support current renters
Many prospective homebuyers may be forced to rent due to our current economy. So, be sure to support and encourage them in their decisions. Over 40% of renters of all ages who planned to buy this year are no longer considering. For the majority, they changed their plans. This is due to economic uncertainty and loss of income in 2020. However, this uncertainty may halt once the country rebounds.
Also, the pandemic may have another long-term effect on the residential real estate market. Several renters claim that they now believe they will never purchase a home.
According to RentCafe’s survey, 56% of renters remain optimistic about buying in five years. On the other hand, 23% said that they are never buying. Half of boomer renters conveyed no intention of switching from renting. So, this follows a trend that has seen renter households grow by 43% over the past decade.
What’s next for renting and buying?
The conventional wisdom of buying being better than renting may not hold as true in 2020. This is due to the complexities of real estate investment, personal finances, and unknown future economic horizons.
Many renters do not think they will ever own a home. This is because they might not be able to afford additional expenses that come with that decision. This includes interest, property taxes, insurance, and maintenance during the entire ownership period.
On the other hand, renting consists only of monthly rent and a possible one-time deposit. So, economically, renting might make more sense than buying a home. With this in mind, you educate your borrowers on the best options for them, since you serve as their trusted advisor.
Think about the future
When making the decision between renting and buying, borrowers need to think about their future. If they’re planning on living in a home for just a year or two, purchasing may be cost prohibitive. This is due to upfront taxes and fees. However, if they intend on living somewhere long-term, paying rent every month may hurt them in the long run.
Although your customers can’t know for sure how long they’ll live in a home, they can estimate. As a loan officer, this information helps you determine if it is worth your client’s investment to purchase a home with the given circumstances.
It’s safe to say that the pandemic has a real effect on the housing plans of many. The general tendency is to avoid taking risks during uncertain times.
So, help your prospective clients choose the most financially intelligent approach for them between renting and buying. After all, there are many variables that make up each person’s housing situation, and there is no perfect answer.