home costs
Apache is functioning normally
A ban on residential building permits in parts of the Phoenix area is angering builders and agents, who feel it may curb the supply of affordable housing.
“Our main concern on the implication of the model that was released is housing affordability,” Spencer Kamps, the vice president of legislative affairs at the Home Builders Association of Central Arizona (HBACA), which serves homebuilders in Maricopa County, said. “Effectively, what we have created is growth boundaries.”
In early June, the Arizona Department of Water Resources (ADWR) announced that it was denying any new certificates of Assured Water Supply (AWS) in the Phoenix Active Management Area (AMA), which encompasses all of Maricopa County and parts of Pinal County, for a total of 5,646 square miles and home to 4.6 million residents. In certain parts of the Phoenix AMA that do not have a designated water provider, builders and developers need a certificate of AWS to obtain a building permit.
Arizona sees the ban as a precautionary measure to curb the effects of climate change, as it will limit the number of new residential properties built in the area.
Maricopa County, which encompasses the cities of Phoenix and Scottsdale, uses 2.2 billion gallons of water per day and receives less than 11 inches of rain per year. More than half of the county’s water supply comes from groundwater. Much of the rest of the county’s water supply comes from the Colorado River, which is in the midst of a decade-long drought. More than 30% of the water used in Maricopa County each day — roughly 640 million gallons — is used for domestic purposes.
Rapid population growth is adding pressure on groundwater resources in the state. No metropolitan area in the country welcomed more new residents than Phoenix last year, at 76,000.
The moratorium on residential permits was made after an analysis conducted in the first half of the year by the ADWR showed that over the next 100 years, 4%, or 4.86 million acre-feet of water of Phoenix AMA’s groundwater demand, would not be met.
“By proactively addressing opportunities for enhancing groundwater availability, we are demonstrating our dedication to long-term sustainability and securing Arizona’s water future,” Chris Camacho, president and CEO of the Greater Phoenix Economic Council, said in a statement.
Arizona has long taken protective actions in the interest of water conservation. The state’s AMAs were put in place in 1980 via the Arizona Groundwater Management Act. The primary goal of the legislation and the AMAs was to ensure homeowners’ water needs were being met, by forcing builders and developers to obtain permission from the state before drilling for water.
Greg Vogel, the founder and CEO of Land Advisors, a Scottsdale-based land brokerage, had some stronger words about the analysis and the building ordinance.
“The original purpose of the Groundwater Management Act was really consumer protection,” Vogel said. “It needs updating and the analysis they did, I think is woefully inaccurate related to its accounting of the supply of groundwater. The analysis showed the entire region was 4% short over 100 years — no other state has anything like this ridiculous requirement.”
Questioning the rationale for the building restrictions, the HBACA said that Arizona was the only state that requires homebuilders to ensure a 100-year water supply in order to build.
Other states in the arid southwest impacted by drought, such as New Mexico, California and Colorado, have water supply requirements of 40 years, 25 years and 20 years, respectively.
The HBACA claims that the homebuilding industry is the only industry in the state required to meet 100 years of demand for ground water use.
Due to the restrictions these regulations have created, Kamps said the HBACA is concerned about the area’s housing supply and housing affordability moving forward.
Under the new regulations, construction of new residential buildings can continue in areas that have a designated water provider since homebuilders and developers do not need an AWS certificate to obtain a building permit. The areas that are most impacted by this building ordinance are the town of Queen Creek, the city of Buckeye and other unincorporated areas of Maricopa County, Kamps said.
However, there is somewhat of a silver lining. There are 80,000 undeveloped lots that have certificates of AWS that the state has said can be developed as planned, which would help mitigate some of the county’s housing supply issues.
“We still have the potential for growth into those 80,000 units,” Kamps said.
“Within those designated providers there are limited opportunities to grow homes and therefore we think, potentially, over the long run the impact on affordability could be significant.”
Kamps added that he anticipates the prices of the 80,000 lots that already have AWS will also increase if developers chose to sell them, since there currently is a finite supply.
Phoenix, said Vogel, was already dealing with low housing inventory and increasing affordability issues.
On August 4, 2023, 5,259 single family homes were for sale in Maricopa County, down from 11,890 homes on August 9, 2019, according to data from Altos Research. During the same period, the median list price for a home in Maricopa County rose from $399,000 to $640,000, and the current Market Action Index score for the county is 51 — Altos considers anything above 30 to be a seller’s market.
“We have a deep shortage of housing,” Vogel said. “The AMA studies they’ve issues and the restrictions they have put in place do not help, but you can build commercial property and multifamily rental properties so long as it is not a subdivision in undesignated areas, for the moment, but there are bills being proposed to short-circuit that.”
While the building ordinance will certainly impact housing inventory, Elise Fay, a local eXp Realty agent, feels that, at least in the short term it won’t have a major impact on home prices.
“The homes they are looking to build in the restricted areas are on the outskirts of the city, so I just don’t see it having a big impact on housing prices,” Fay said. “The homes out there do tend to be more affordable though, so that is probably going to hurt some first time home buyers.”
Despite rising home costs and dwindling inventory, some local real estate agents who spoke with HousingWire said they weren’t overly concerned about the building ordinance.
“No one is really talking about it,” Robert Shaw, the Arizona regional vice president of Hunt Real Estate ERA, said. “Since this is about building permits it will be years before it impacts the resale home market, which is the majority of homes agents deal with, so it hasn’t really been a big topic of discussion.”
Fay, a native New Yorker, to whom water shortages were a foreign concept before moving west, said she felt the building ordinance was a sign of the state’s commitment to the stewardship of water resources over the long term.
“Arizona has been innovative in their water management and [when] you realize that they have a 100-year water supply requirement for groundwater, you feel better,” she said.
Although the issuance of new building permits may be on hold for now and the excessive heat and drought situation in Phoenix, which has seen over a month straight of at least 110-degree weather, does not appear to be improving, the HBACA remains optimistic about the future of residential building in the metro area.
“When the governor announced it, she called it a pause and we were pleased to hear that because that told us that it wasn’t a permanent policy of the state,” Kamps said. He also noted that the governor has created a water council that is currently working on recommendations on how to fix the groundwater issues, which it will present to the governor in early 2024.”
Source: housingwire.com
Apache is functioning normally
The American Automobile Association (AAA) says that, on average, it costs 52.2 cents to drive one mile. To drive a Ford Focus like mine 20,000 miles per year, the average cost is 37.6 cents per mile.
How close are the AAA estimates? I ran some numbers.
Based on the purchase price of my vehicle ($16,500), the interest paid ($1,300), and the number of miles on the odometer (81,762 in 66 months), I calculated that for the past year my average cost per mile is $0.2170 over 20,274 miles. But that’s only for the car itself. I’ve also accumulated the following operating expenses:
- Fuel: $1,646.37 ($0.0812 per mile)
- Insurance: $762.93 ($0.0376 per mile)
- Service: $507.07 ($0.0250 per mile)
My total cost-of-ownership per mile is 36.1 cents, which is not far from the AAA estimate of 37.6 cents. My total cost to run the Focus for the past year was $7,514, which is about 5% less than the national $7,967 annual average cost-of-ownership.
I encourage you to run numbers for your car. It’s easy and enlightening. After calculating your current automobile costs, you can explore “what if?” scenarios. For example, how much do rising gas prices affect your costs?
My Ford Focus gets roughly 310 miles on eleven gallons of fuel, for an average of 28.2 mpg. If fuel is at $3.00/gallon instead of $2.00/gallon, I’m paying 10.3% more — $725/year — to run my car.
How much does it affect your cost-per-mile to choose a luxury car instead of something practical? I recently found myself fighting the new car itch. I wanted a new BMW or Audi. A commenter wrote:
In The Millionaire Next Door, one of the best-performing groups in terms of net worth was what the authors called something like “used car prone”. This class of person buys a car that is 3 to 5 years old, and drives it for many years. The authors spend a lot of time discussing this class because it is statistically most likely to have a very high net worth compared to annual income.
If I were driving a new BMW 325i, my total cost of operation would be 60.1 cents per mile, a 68.8% increase over the cost with my Ford Focus.
Examine your driving habits in relation to how much it costs to run your vehicle. For example, driving seven miles into Portland and seven miles home costs me about five bucks. Now the trip to my favorite cheap taco place doesn’t seem so cheap any more.
If I drive 38.6 miles to work and back every day, I spend one hour and $13.93 for the privilege. (When I lived closer to work, my 11.4 mile round-trip cost me twenty minutes and $4.11.) My wife and I plan to drive from Portland to San Francisco for a week-long vacation this summer. We will log about 1200 miles, which will cost me $425. (According to Travelocity, round-trip airfare for two would run $442, so this is basically a wash.)
For more information on the cost of automobile ownership, read the AAA driving cost study for 2006.
Source: getrichslowly.org
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Many seniors have misconceptions on the differences between Medicare and Medicaid eligibility benefits.
Throw in long term care insurance, and the water gets even more muddier. Even as a Certified Financial Planner, it’s tough trying to stay on top of all the issues concerning seniors.
To help clear some of the mental fog that comes along with these issues, I decided to bring in a subject matter expert to help out. Tiffanny Sievers, Attorney at Law and founder of SI Elder Law has been kind of enough to share her expertise on the differences between Medicare and Medicaid and how seniors can plan for their later years. Here’s what she had to say….
1. What steps can one make to prepare for dealing with elder issues?
In order to properly prepare for elder issues a individual first needs to have a good foundation of good planning documents. This means having a Power of Attorney for Property and a Power of Attorney for Health Care. These documents allow someone you pick to make property and health care decisions for you when you are unable to do so yourself. Second they need to be prepared for an untimely death. It is better to plan when you are healthy than when you are sick.
Of course, meet with an attorney and that attorney can help you decide what documents you will need to make sure that your wishes are carried out after your death, such as a last will and testament or trust. Third, meet with your financial advisor to determine what investments will give your beneficiaries the best tax benefits and make sure that you have enough Life Insurance to pay for your burial expenses.
Finally, you need to make sure that you have enough assets to avoid running out of money. Once you run out of money, you run out of options. One needs to meet with an elder law attorney, like myself, to make sure that your assets are properly placed to avoid running out of money if you need long term care either at home or in a nursing home.
2. How long will Medicare cover nursing home costs?
In a nursing home, Medicare will cover the first 20 days 100% and then the next 80 days at 80% if you continue to improve medically. After the first 100 days no matter how much improvement you make, Medicare will stop paying and you must either move out or find some other way to pay.
3. What is the difference between Medicare and Medicaid? Common misconceptions?
Almost everyone over the age of 65 is on Medicare and it doesn’t matter what your assets are. However, you must qualify for Medicaid, Medically and financially. Medicaid will only pay if you have limited assets. This means that after Medicare stops paying you have to spend down your assets until you are just about broke before you qualify for Medicaid.
4. How much does it cost to be in nursing home?
Nursing homes in Southern Illinois cost between $2200 and $5500 a month. In Chicago, one month is $7,500 and up. Assisted Living Ranges from $1,500 to $4,500 a month. Private caregivers in your home range between $3000 and $12,000 a month depending on how much care is needed.
5. What are the ways to pay for nursing home costs?
In my opinion, there are five ways to pay for nursing home costs:
1. Private Pay – with good old fashion cash.
2. Long Term Care Insurance – If you have bought “nursing home insurance” the policy will pay a certain amount of money per day for your stay in a nursing facility. You must have bought a policy before you needed nursing home care.
3. Veterans Benefits – The Veterans Administration offers a VA Pension benefits for Veterans or Widows of Veterans if you meet three criteria:
- 1. Served at least 90 days of active duty
- 2. One of those days was during a period of war
- 3. Were something other than dishonorably discharged from the military.
4. Medicare – as discussed above will only pay for part of the first 100 day stay in a Skilled Care Facility
5. Medicaid – Medicaid pays for your entire stay at a nursing home or supportive living facility. It does not pay for care at home.
Medicaid, unlike Veterans benefits, does not pay a cash benefit but only pays directly for services. In fact, you will never receive any cash from Medicaid. Medicaid has no limit, it will pay for any kind of care that you need. For example, Medicaid will pay for the removal of a splinter or for open heart surgery, no matter the cost.
In order to qualify for Medicaid there are asset and income limitations. If you are married, the community spouse cannot have more than $109, 560 plus a house in assets. If you are married, the community spouse will get to keep about $2700 a month of the couple’s combined income. Whatever income the couple has over the $2700 the nursing home will be awarded.
If you are single, you must have less than $2000 in assets and all of your income will go to the nursing home less $30 a month. What SI Elder Law does, is help protect assets so that you can be on Medicaid and not be completely broke. In most cases, SI Elder Law can save half of your assets once you are in a nursing home and you will receive Medicaid benefits. The sooner that you call SI Elder Law the more money that we can save.
6. What hope, if any, is there for those that didn’t plan?
With the current laws right now in Illinois, if you haven’t done any planning and are already in a nursing home, I can save half of your assets. The sooner you get to me the more money that I can protect. For some of my clients, I am able to protect everything.
7. Anything else?
Remember, that any transfer of assets, if not done the correct way can give you a big penalty period and that might have been avoidable. It is best to talk with an Elder Law attorney before moving any assets so that you get the shortest penalty period possible or avoid a penalty period at all.
If anyone is already facing the possibility of nursing home care, I offer a free consultation in my office to see if there is anything that I can do to help.
Source: goodfinancialcents.com
Apache is functioning normally
The Phoenix area boasts year-round sunshine, a vibrant arts scene, and diverse culinary options, making it an attractive destination to call home. If you’re considering moving to Phoenix, then you may be wondering whether to rent versus buy a home in the area. Even in today’s real estate market, there are pros and cons to consider if you’re renting or buying a home in Phoenix, making it that much harder to decide what fits your goals.
If you’re looking to buy a home in Phoenix, the current median sale price for a home is $440,000 as of July. According to a recent Redfin study, the estimated median monthly mortgage cost is $3,464 while the average rent price in Phoenix is $2,765. For many potential homebuyers, this means renting a home costs less than buying a home in today’s market. However, it’s important to know that there are many reasons why buying a home now may be the best choice for you.
At the end of the day, making the decision between buying a house or renting an apartment in Phoenix depends on a variety of factors. Whether that’s having flexibility in where you live or your financial goals, there are numerous factors that can help you make the decision. We’ll help guide you along the way as you make the decision between renting vs buying in Phoenix. That way, you can make the best decision for your goals.
Advantages of buying a home in Phoenix
Long-term financial benefits
One of the biggest advantages to buying a home is the opportunity to build equity and the long term benefits that go along with homeownership – whether it’s a home, condo, or townhouse. In my opinion, there ultimately is no bad real estate purchase when looking backwards. After 5-10 years whatever you thought was too high or too much interest ultimately is overshadowed by the market rise in pricing.
Arizona enjoys lower taxes and less home maintenance
Compared to other large cities across the U.S., popular markets like Phoenix and Scottsdale enjoy a lower tax rate. There’s also less maintenance required for homeowners due to xeriscaping.
Disadvantages of buying a home in Phoenix
Long commute times
A current challenge for Phoenix homebuyers is the commuting time. You can grab a great starter home, but you may need to add miles to your commute.
Determining if you are ready to buy a house in Phoenix
When deciding if now is the right time for you to buy a home in Phoenix, AZ, it’s crucial to approach the decision thoughtfully and consider several key factors that can help determine your readiness for homeownership:
- Financial stability: Before you start your homebuying journey, it’s important to have a good credit score and a stable income. Make sure you set aside some additional funds for down payment, closing costs, and additional expenses that go into the homebuying process. It’s also a good idea to build an emergency fund in case you have any unexpected expenses.
- Personal goals: You’ll want to think about your personal goals and assess your priorities before deciding to buy a home. Are you looking for a fixer-upper or a move-in ready house? Do you want a home with eco-friendly features or a historic home? Determine what’s important to you in a home and if buying a home in the Phoenix aligns with those goals.
- Housing market conditions: The housing market in Phoenix is somewhat competitive, so it’s important to understand the current market conditions and how much you can afford.
- Long term commitment: In comparison to renting an apartment, buying a home is a significant financial investment and time commitment. So, if you’re not sure you’ll be living in the Phoenix area for more than a few years, it may be better to continue renting vs buying a home.
If you’re unsure whether you’re ready to buy, consider consulting with your real estate or financial advisor to fully understand your options.
Is it competitive to buy a home in Phoenix?
I find that most buyers are competing with the news cycle, not the market. With a Compete Score of 51, the Phoenix housing market is somewhat competitive with some homes receiving multiple offers.
Advantages of renting a home in Phoenix
Ability to get to know the area
If you’re new to the Phoenix/Scottsdale area, renting a home gives you the flexibility to explore different neighborhoods and get accustomed to the weather. If you’ve never experienced an Arizona summer, it’s a good idea to test your ability to withstand the summer before buying.
No maintenance costs
Another advantage of renting in Phoenix is that you won’t have to worry about maintenance of the property. Typically, this is the landlord’s responsibility.
Disadvantages of renting a home in Phoenix
Risk of rent increasing
One of the biggest disadvantages to renting vs. buying a home in Phoenix is that your rent price can increase each time you renew your lease, and by a significant amount.
No equity to build
Renting a home doesn’t provide you with the same financial benefits as owning a home would. When you rent a home, your monthly payments go to the landlord rather than towards your own mortgage payment, and thus there’s no opportunity for building wealth.
Renting vs buying in Phoenix: A real estate agent’s final thoughts
In my opinion, it’s always a good time to buy a home in the Phoenix and Scottsdale area.
At the end of the day, whether you rent or buy in the Phoenix area is a wonderful place to call home. If you’re just starting to think about buying a home, make sure you’ve looked through your finances to understand what you can afford now and in the years to come.
Source: redfin.com
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Overview
Mortgages are essential financial tools that create a pathway to homeownership for millions of Americans each year. In recent years, however, many homebuyers have struggled to obtain small mortgages to purchase low-cost homes, those priced under $150,000.1 This problem has garnered the attention of federal regulators, including the Federal Housing Administration (FHA) and the Consumer Financial Protection Bureau (CFPB), who view small mortgages as important tools to increase wealth-building and homeownership opportunities in financially undeserved communities.2
Research has explored mortgage access at different loan amounts, such as below $100,000 or $70,000, and found that small mortgages are scarce relative to larger home loans. Those analyses show that applications for small mortgages are more likely to be denied than those for larger loans, even when applicants have similar credit scores.3 Although the existing research has identified several possible contributing factors to the shortage of small mortgages, the full spectrum of causes and their relative influence are not well understood.4
The Pew Charitable Trusts set out to fill that gap by examining the availability of small mortgages nationwide, the factors that impede small mortgage lending, and the options available to borrowers who cannot access these loans. Pew researchers compared real estate transaction and mortgage origination data from 2018 to 2021 in 1,440 counties across the U.S.; looked at homeownership statistics; and reviewed the results from Pew’s 2022 survey of homebuyers who have used alternative financing methods, such as land contracts and rent-to-own agreements.5 (See the separate appendices document for more details.) This examination found that:
- Small mortgages became less common from 2004 to 2021. Nationally, much of the decline in small mortgage lending is the result of home price appreciation, which continually pushes properties above the price threshold at which small mortgages could finance them. However, even after accounting for price changes, small mortgages are less available nationwide than they were two decades ago, although the decline varies by geography.
- Most low-cost home purchases do not involve a mortgage. Despite rising prices, sales of low-cost homes remain common nationwide, accounting for more than a quarter of total sales from 2018 to 2021. However, just 26% of properties that sold for less than $150,000 were financed using a mortgage, compared with 71% of higher-cost homes.
- Borrowers who cannot access small mortgages typically experience one of three undesirable outcomes. Some households cannot achieve homeownership, which deprives them of one of this nation’s key wealth-building opportunities. Others pay for their home purchase using cash, though this option is challenging for all but the most well-resourced households and is almost never available to first-time homebuyers. And, finally, some resort to alternative financing arrangements, which tend to be riskier and costlier than mortgages, because in most states they are poorly defined and not subject to robust—or sometimes any—consumer protections.
- Structural and regulatory barriers limit the profitability of small mortgage lending. The most significant of these barriers is that the fixed costs of originating a mortgage are disproportionally high for smaller loans. Federal policymakers can help address these challenges by identifying opportunities to modernize certain regulations in ways that reduce lenders’ costs without compromising borrower protections.
Mortgages are the main pathway to homeownership
In the United States, homeownership remains a priority for most families: In one nationally representative survey, 74% of respondents said owning a home is an integral part of the American Dream.6 Some Americans value homeownership for personal reasons, citing it as a better option for their family, their sense of safety and security, and their privacy.7 Still others emphasized homeownership’s financial benefits, noting that owning makes more economic sense than renting, enables them to take advantage of their home’s resale value, and can provide substantial tax benefits.8
But regardless of their reasons for buying homes, most American families rely on mortgages to gain access to homeownership because they cannot afford to purchase a home with cash. According to a survey conducted from July 2021 to June 2022, 78% of homebuyers financed their purchases with mortgages, most of which were fixed-rate loans. Mortgages are even more prevalent among first-time homebuyers: 97% used a mortgage to purchase their starter home.9 Given the predominance of mortgages, it is no surprise that changes in mortgage availability have closely correlated with shifts in the nation’s homeownership rate over the past two decades.10 (See Figure 1.)
Mortgages not only enable homeownership, but they also enhance its financial benefits. In most cases, these loans help borrowers purchase larger or more valuable homes than they could otherwise afford. Fixed-rate mortgages also serve as a hedge against inflation and offer borrowers housing cost certainty in the form of a predictable schedule of payments for the duration of the loan.
In addition, mortgages are subject to robust consumer protections. Most mortgages include inspection and appraisal contingencies, which ensure that homes meet minimum habitability standards and that the sale price reflects the home’s true market value, respectively.11 Further, real estate transactions involving mortgages typically include a clear process for transferring the property’s title from seller to buyer, which is a crucial step in guaranteeing that borrowers can demonstrate ownership of their property. And in the event of default, CFPB rules contain clear foreclosure and delinquency processes that give mortgage borrowers an opportunity to make any missed payments and retain their homes.12
Because of these advantages, financing a home purchase with a mortgage is almost always in buyers’ best interest. However, homebuyers seeking loans under $150,000 are often unable to find a mortgage and so are deprived of the benefits of homeownership, of mortgages, or both.
Small mortgages are scarce
Small mortgages are less common today than they were before the Great Recession, when lenders issued small and large mortgages in roughly equal measure. In 2004, for example, lenders originated 2.7 million mortgages for less than $150,000 (in 2004 dollars) and 2.9 million large mortgages—those of $150,000 or more. But Pew estimates that from 2004 to 2021, small mortgage lending fell by nearly 70% to 830,000 loans a year, while large mortgage lending grew by 52% to 4.4 million loans annually. The decline was more acute in certain parts of the country. For instance, the Federal Reserve Bank of Philadelphia found that small mortgages declined by only 28% in Pennsylvania and Delaware from 2019 to 2021 but fell by 43% in New Jersey over the same span.13
Some of the decrease in small mortgage lending can be explained by rising home prices. As homes become more expensive, fewer properties can be purchased using a small mortgage. And the issue of housing affordability has grown more acute over the past two decades. According to the Zillow Home Value Index, single-family home prices rose faster than the rate of inflation from 2004 to 2021. Furthermore, those increases were largest among lower-priced homes.14 Still, home price appreciation does not fully account for the decline in small mortgage lending. (See Figure 2.)
Although low-cost properties are scarcer than they once were, they continue to be bought and sold in large numbers across the country. But the share of those homes purchased with a mortgage is far lower than that for higher-priced properties. From 2018 to 2021, the 1,440 counties Pew studied collectively recorded about 20 million home sales, of which 5.3 million were for less than $150,000. Although the share of low-cost properties varied based on local market conditions, every county in this analysis recorded at least one low-cost sale. During the same period, lenders originated about 12.1 million mortgages in the counties Pew studied, including roughly 1.4 million for purchases under $150,000.15 Based on these mortgage origination and home sale figures, Pew estimates that about 71% of homes priced at $150,000 or more were financed using a mortgage, compared with just 26% of lower-cost homes. (See Figure 3.) This amounts to a financing gap of 44 percentage points, or about 560,000 home purchases that were not financed with small mortgages.
Importantly, however, this analysis probably overstates the magnitude of the financing gap for two key reasons. First, Pew is unable to observe the physical quality of the homes purchased in the studied counties. Evidence suggests that low-cost homes are more likely than higher-cost homes to have structural deficiencies that disqualify them from mortgage financing. Second, even if small mortgages are readily available, many sellers, and probably some buyers, are likely to prefer cash transactions. (See “Cash purchases” below for more details.) Still, these factors do not fully account for the gap in small mortgage financing.
What happens when people cannot get a small mortgage?
When prospective buyers of low-cost homes cannot access a small mortgage, they typically have three options: turn to alternative forms of financing such as land contracts, lease-purchases, or personal property loans; purchase their home using cash; or forgo owning a home and instead rent or live with family or friends. Each of these outcomes has significant disadvantages relative to buying a home using a small mortgage.
Alternative financing
Many alternative financing arrangements are made directly between a seller and a buyer to finance the sale of a home and are generally costlier and riskier than mortgages.16 For example, personal property loans—an alternative arrangement that finances manufactured homes exclusive of the land beneath them—have median interest rates that are nearly 4 percentage points higher than the typical mortgage issued for a manufactured home purchase.17 Further, research in six Midwestern states found that interest rates for land contracts—arrangements in which the buyer pays regular installments to the seller, often for an agreed upon period of time—ranged from zero to 50%, with most above the prime mortgage rate.18 And unlike mortgages, which are subject to a robust set of federal regulations, alternative arrangements are governed by a weak patchwork of state and federal laws that vary widely in their definitions and protections.19
But despite the risks, millions of homebuyers continue to turn to alternative financing. Pew’s first-of-its-kind survey, fielded in 2021, found that 36 million people use or have used some type of alternative home financing arrangement.20 And a 2022 follow-up survey on homebuyers’ experiences with alternative financing found that these arrangements are particularly prevalent among buyers of low-cost homes. From 2000 to 2022, 50% of borrowers who used these arrangements purchased homes under $150,000. (See the separate appendices document for survey toplines.)
Further, the 2022 survey found that about half of alternative financing borrowers applied—and most reported being approved or preapproved—for a mortgage before entering into an alternative arrangement. Pew’s surveys of borrowers, interviews with legal aid experts, and review of research on alternative financing shed some light on the advantages of alternative financing—despite its added costs and risks—compared with mortgages for some homebuyers:
- Convenience. Alternative financing borrowers do not have to submit or sign as many documents as they would for a mortgage, and in some instances, the purchase might close more quickly.21 For example, Pew’s 2022 survey found that just 67% of respondents said they had to provide their lender with bank statements, pay stubs, or other income verification and only 60% had to furnish a credit report, credit score, or other credit check, all of which are standard requirements for mortgage transactions.
- Upfront costs. Some alternative financing arrangements have lower down payment requirements than do traditional mortgages.22 Borrowers who are unable to afford a substantial down payment or who want small monthly payments may find alternative financing more appealing than mortgages, even if those arrangements cost more over the long term. For example, in Pew’s 2022 survey, 23% of respondents said they did not pay a down payment, deposit, or option fee. And among those who did have a down payment, 75% put down less than 20% of the home price, compared with 59% of mortgage borrowers in 2021.23
- Specifics of a home. Borrowers who prioritize the location or amenities of a specific home over the type, convenience, and cost of financing they use might agree to an alternative arrangement if the seller insists on it, rather than forgo purchasing the home.
- Familiarity with seller. Borrowers buying a home from family or friends might agree to a transaction that is preferable to the seller because they trust that family or friends will give them a fair deal, perhaps one that is even better than they would get from a mortgage lender.
However, regardless of a borrower’s reasons, the use of alternative financing is cause for concern because it is disproportionately used—and thus the risks and costs are inequitably borne—by racial and ethnic minorities, low-income households, and owners of manufactured homes. Among Americans who have financed a home purchase, 34% of Hispanic and 23% of Black households have used alternative financing at least once, compared with just 19% of White borrowers. (See Figure 4.) Further, families earning less than $50,000 are seven times more likely to use alternative financing than those earning more than $50,000. And nearly half of surveyed manufactured home owners reported using a personal property loan.24 In all of these cases, expanding access to small mortgages could help reduce historically underserved communities’ reliance on risky alternative financing arrangements.
Cash purchases
Other homebuyers who fail to obtain a small mortgage instead choose to pay cash for their homes. In 2021, about a quarter of all home sales were cash purchases, and that share grew in 2022 amid an increasingly competitive housing market.25 The share of cash purchases is larger among low-cost than higher-cost property sales, which may partly be a consequence of the lack of small mortgages.26 However, although cash purchases are appealing to some homebuyers and offer some structural advantages, especially in competitive markets, they are not economically viable for the vast majority of first-time homebuyers, 97% of whom use mortgages.27
Purchasing a house with cash gives buyers a competitive advantage, compared with using a mortgage. Sellers often prefer to work with cash buyers over those with financing because payment is guaranteed, and the buyer does not need time to secure a mortgage. Cash purchases also enable simpler, faster, and cheaper sales compared with financed purchases by avoiding lender requirements such as home inspections and appraisals. In essence, cash sales eliminate “financing risk” for sellers by removing the uncertainties and delays that can accompany mortgage-financed sales. Indeed, as the housing supply has tightened and competition for the few available homes has increased, purchase offers with financing contingencies have become less attractive to sellers. As a result, some financing companies have stepped in to make cash offers on behalf of buyers, enabling those borrowers to be more competitive but often saddling them with additional costs and fees.
However, most Americans do not have the financial resources to pay cash for a home. In 2019, the median home price was $258,000, but the median U.S. renter had just $15,750 in total assets—far less than would be necessary to buy a house.28 Even households with cash on hand may be financially destabilized by a cash purchase because investing a substantial sum of money into a home could severely limit the amount of money they have available for other needs, such as emergencies or everyday expenses. Perhaps because of the financial challenges, homes purchased with cash tend to be smaller and cheaper than homes bought using a mortgage.29
These challenging economic factors limit the types of homebuyers who pursue cash purchases. Investors—both individual and institutional—make up a large share of the cash-purchase market, and are more likely than other buyers to purchase low-cost homes and then return the homes to the market as rental units.30
Researchers have questioned whether cash purchases are truly an alternative to mortgage financing or whether they fundamentally change the composition of homebuyers. One study conducted in 2016 determined that tight credit standards enacted in the aftermath of the 2008 housing market crash resulted in a large uptick in cash purchases, mostly by investor-buyers.31 More recent evidence from 2020 through 2021 suggests that investor purchases are more common in areas with elevated mortgage denial rates, low home values, and below-average homeownership rates.32 In each of these cases, a lack of mortgage access tended to benefit investors, possibly at the expense of homeowners.
No homeownership
Some prospective homebuyers who are unable to access a small mortgage simply forgo homeownership entirely. Instead of buying, these families may choose to rent or live with friends or family. And although these are not necessarily bad outcomes, they lack the financial advantages of homeownership.
On average, homeowners have a net worth that is more than 40 times that of renters, largely because of the equity they accrue from paying down their mortgage balances and from their homes’ appreciation over time.33 In 2019, the median homeowner had $225,000 of equity, accounting for almost 90% of their overall net worth.34
Further, in rental markets with few vacancies and commensurately high costs, owning a home can cost less per month than renting. Recent evidence suggests that, particularly when mortgage interest rates are low, a mortgage payment for a three-bedroom house can be cheaper than the monthly rent for a three-bedroom apartment.35 Likewise, some evidence suggests that buying an inexpensive starter home costs less than renting in some metropolitan areas in the South and Midwest.36
Importantly, the financial benefits of homeownership are not shared equally throughout the country. Historical patterns of discrimination in mortgage lending and government policy have prevented Black, Hispanic, and Indigenous households from accessing homeownership at the same rate as White households. And many of those structural barriers persist, as evidenced by the Black-White homeownership gap, which was wider in 2020 than it was in 1970.37
Mortgage Denials Play a Small Role in Low Access to Credit
Lenders deny applications for small mortgages more often than those for larger loans. From 2018 to 2021, lenders received about 700,000 small mortgage applications per year for site-built single-family homes, of which they denied 11.8%. In contrast, lenders denied just 7.8% of the roughly 3.6 million applications submitted annually for larger mortgages during the same period.
These differences do not entirely reflect applicants’ creditworthiness, as measured by debt-to-income ratio (a person’s monthly debt divided by their income), loan-to-value ratio (dollar amount of a mortgage as a share of the subject property’s appraised value), or credit scores. Research demonstrates that, even for applicants with similar credit profiles, denial rates are much higher for small mortgages than large ones.38 Pew’s analysis confirms these findings. Lenders denied small mortgage applicants with low debt-to-income ratios (36% and below) 8.8% of the time, compared with 4.7% of the time for larger loan applicants with a similar profile. Likewise, applicants with loan-to-value ratios under 80% were more likely to be denied for a small mortgage than a large one.
However, mortgage denials are not the primary cause of the small mortgage shortage. Pew’s analysis found that if lenders denied applications for small mortgages at the same rate as those for larger mortgages, they would originate about 31,000 more small mortgages each year. Although thousands of borrowers would benefit from lower small mortgage denial rates, those additional loans would increase the share of low-cost properties financed with a mortgage by only about 3 percentage points. These findings suggest that lowering the denial rate is not sufficient to increase access to safe and affordable mortgage financing and that regulators need to do more to improve incentives for lenders to originate small mortgages and boost awareness among borrowers.
Small mortgage lending is not profitable for lenders
Policymakers, consumer advocates, and industry agree that increasing the supply of small mortgages could boost homeownership—especially in underserved, low-cost communities.39 But many mortgage lenders simply do not offer small home loans to borrowers. Of the more than 5,000 lenders that originated mortgages from 2018 to 2021, 38% did not issue a single small mortgage.40
In conversations with Pew, lenders, consumer advocates, and government officials identified several potential structural and regulatory obstacles to small mortgage lending. These include the high fixed cost of origination, commission-based compensation for loan officers, the poor physical quality of many low-cost housing units, and various rules and regulations that help protect consumers but may add cost or complexity to the origination process and could be updated to maintain safety at lower cost to lenders.
Structural barriers
Lenders have repeatedly identified the high fixed cost of mortgage originations as a barrier to small mortgage lending because origination costs are roughly constant regardless of loan amount, but revenue varies by loan size. As a result, small mortgages cost lenders about as much to originate as large ones but produce much less revenue, making them unprofitable. Further, lenders have reported an increase in mortgage origination costs in recent years: $8,243 in 2020, $8,664 in 2021, and $10,624 in 2022.41 In conversations with Pew, lenders indicated that many of these costs stem from factors that do not vary based on loan size, including staff salaries, technology, compliance, and appraisal fees.
Lenders typically charge mortgage borrowers an origination fee of 0.5% to 1.0% of the total loan balance as well as closing costs of roughly 3% to 6% of the home purchase price.42 Therefore, more expensive homes—and the larger loans usually used to purchase them—produce higher revenue for lenders than do small mortgages for low-cost homes.
In addition, standard industry compensation practices for loan officers may limit the availability of small mortgages. Lenders typically employ loan officers to help borrowers choose a loan product, collect relevant financial documents, and submit mortgage applications—and pay them wholly or partly on commission.43 And because larger loans yield greater compensation, loan officers may focus on originating larger loans at the expense of smaller ones, reducing the availability of small mortgages.
Finally, lenders must contend with an aging and deteriorating stock of low-cost homes, many of which need extensive repairs. Data from the American Housing Survey shows that 6.7% of homes valued under $150,000 (1.1 million properties) do not meet the Department of Housing and Urban Development’s definition of “adequacy,” compared with just 2.6% of homes valued at $150,000 or more (1.7 million properties).44 The Federal Reserve Bank of Philadelphia estimates that, despite some improvement in housing quality overall, the total cost of remediating physical deficiencies in the nation’s housing stock nevertheless increased from $126.2 billion in 2018 to $149.3 billion in 2022.45
The poor physical quality of many low-cost properties can limit lenders’ ability to originate small mortgages for the purchase of those homes. For instance, physical deficiencies threaten a home’s present and future value, which makes the property less likely to qualify as loan collateral. And poor housing quality can render many low-cost homes ineligible for federal loan programs because the properties cannot meet those programs’ strict habitability standards.
Regulatory barriers
Regulations enacted in the wake of the Great Recession vastly improved the safety of mortgage lending for borrowers and lenders. But despite this success, some stakeholders have called for streamlining of regulations that affect the cost of mortgage origination to make small mortgages more viable. The most commonly cited of these are certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Qualified Mortgage rule (QM rule), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and parts of the CFPB’s Loan Originator Compensation rule.46
The Dodd-Frank Act requires creditors to make a reasonable, good-faith determination of a consumer’s ability to repay a mortgage. This provision has significantly increased the safety of the mortgage market and protected borrowers from unfair and abusive loan terms—such as unnecessarily high interest rates and fees—as well as terms that could strip borrowers of their equity. Lenders can meet Dodd-Frank’s requirements by originating a “qualified mortgage” (QM), which is a loan that meets the CFPB’s minimum borrower safety standards, including limits on the points, fees, and annual percentage rate (APR) the lender can charge.47 In return for originating mortgages under this provision, known as the QM rule, the act provides protection for lenders from any claims by borrowers that they failed to verify the borrower’s ability to repay and so are liable for monetary damages in the event that the borrower defaults and loses the home.
Some lenders and researchers have suggested that the QM rule has increased the cost of mortgage origination because lenders had to establish new processes to verify borrowers’ ability to repay and adhere to stricter compliance requirements.48 In addition, lenders who cannot keep their charges within the QM rule limits often have to offer credits to lower the borrower-facing fees, which can result in lenders originating the loan at a loss.49 And although 2020 revisions to the QM rule gave lenders more flexibility in calculating a borrower’s ability to repay, the extent to which those changes help lenders keep origination costs in check remains unclear.
Another regulation that lenders and researchers have cited as possibly raising the cost of origination is the CFPB’s Loan Originator Compensation rule. The rule protects consumers by reducing loan officers’ incentives to steer borrowers into products with excessively high interest rates and fees. However, lenders say that by prohibiting compensation adjustments based on a loan’s terms or conditions, the rule prevents them from lowering costs for small mortgages, especially in underserved markets. For example, when making small, discounted, or reduced-interest rate products for the benefit of consumers, lenders earn less revenue than they do from other mortgages, but because the rule entitles loan officers to still receive full compensation, those smaller loans become relatively more expensive for lenders to originate. Lenders have suggested that more flexibility in the rule would allow them to reduce loan officer compensation in such cases.50 However, regulators and researchers should closely examine the effects of this adjustment on lender and borrower costs and credit availability. Although such changes would lower lenders’ costs to originate small mortgages for underserved borrowers, they also could further disincline loan officers from serving this segment of the market and so potentially do little to address the small mortgage shortage.
Lastly, some lenders have identified HOEPA as another deterrent to small mortgage lending. The law, enacted in 1994, protects consumers by establishing limits on the APR, points and fees, and prepayment penalties that lenders can charge borrowers on a wide range of loans. Any mortgage that exceeds a HOEPA threshold is deemed a “high-cost mortgage,” which requires lenders to make additional disclosures to the borrower, use prescribed methods to assess the borrower’s ability to repay, and avoid certain loan terms. Changes to the HOEPA rule made in 2013 strengthened the APR and points and fees standards, further protecting consumers but also limiting lenders’ ability to earn revenue on many types of loans. Additionally, the 2013 revision increased the high-cost mortgage thresholds, revised disclosure requirements, restricted certain loan terms for high-cost mortgages, and imposed homeownership counseling requirements.
Many lenders say the 2013 changes to HOEPA increased their costs and compliance obligations and exposed them to legal and reputational risk. However, research has shown that the changes did not significantly affect the overall loan supply but have been effective in discouraging lenders from originating loans that fall above the high-cost thresholds.51 More research is needed to understand how the rule affects small mortgages.
Regulators and lenders have taken some action to expand access to small mortgages
A diverse array of stakeholders, including regulators, consumer advocates, lenders, and researchers, support policy changes to safely encourage more small mortgage lending.52 And policymakers have begun looking at various regulations to identify any that may inadvertently limit borrowers’ access to credit, especially small mortgages, and to address those issues without compromising consumer protections.
Some regulators have already introduced changes that could benefit the small mortgage market by reducing the cost of mortgage origination. For example, in 2022, the Federal Housing Finance Agency (FHFA) announced that to promote sustainable and equitable access to housing, it would eliminate guarantee fees (G-fees)—annual fees that Fannie Mae and Freddie Mac charge lenders when purchasing mortgages—for loans issued to certain first-time, low-income, and otherwise underserved homebuyers.53 Researchers, advocates, and the mortgage industry have long expressed concern about the effect of G-fees on the cost of mortgages for borrowers, and FHFA’s change may lower costs for buyers who are most likely to use small mortgages.54
Similarly, FHFA’s decision to expand the use of desktop appraisals, in which a professional appraiser uses publicly available data instead of a site visit to determine a property’s value, has probably cut the amount of time it takes to close a mortgage as well as appraisal costs for certain loans, which in turn should reduce the cost of originating small loans without materially increasing the risk of defaults.55
At the same time, some lenders have been exploring the use of special purpose credit programs (SPCPs) to increase access to mortgage financing for low-cost homebuyers from historically disadvantaged communities.56 SPCPs allow lenders to design loan products that address the unique needs of borrowers of color, manufactured home buyers, and residents of areas where alternative financing is prevalent, all of whom have typically been underserved by the mortgage industry.
Other entities, such as nonprofit organizations and community development financial institutions (CDFIs), are also developing and offering small mortgage products that use simpler, more flexible underwriting methods than other mortgages, thus reducing origination costs.57 Where these products are available, they have increased access to small mortgages and homeownership, especially for low-income families and homebuyers of color.
Although these initiatives are encouraging, high fixed costs are likely to continue making small mortgage origination difficult, and the extent to which regulations governing loan origination affect—or might be safely modified to lower—these costs is uncertain. Unless policymakers address the major challenges—high fixed costs and their drivers—lenders and regulators will have difficulty bringing innovative solutions to scale to improve access to small mortgages. Future research should continue to explore ways to reduce costs for lenders and borrowers and align regulations with a streamlined mortgage origination process, all while protecting borrowers and maintaining market stability.
Solutions to small mortgage challenges in underserved communities
Structural barriers such as high fixed origination costs, rising home prices, and poor home quality partly explain the shortage of small mortgages. But borrowers also face other obstacles, such as high denial rates, difficulty making down payments, and competition in housing markets flooded with investors and other cash purchasers. And although small mortgages have been declining overall, the lack of credit access affects some communities more than others, driving certain buyers into riskier alternative financing arrangements or excluding them from homeownership entirely.
To better support communities where small mortgages are scarce, policymakers should keep the needs of the most underserved populations in mind when designing and implementing policies to increase access to credit and homeownership. No single policy can improve small mortgage access in every community, but Pew’s work suggests that structural barriers are a primary driver of the small mortgage shortage and that federal policymakers can target a few key areas to make a meaningful impact:
- Drivers of mortgage origination costs. Policymakers should evaluate federal government compliance requirements to determine how they affect costs and identify ways to streamline those mandates without increasing risk, particularly through new financial technology. As FHFA Director Sandra L. Thompson stated in April 2023: “Over the past decade, mortgage origination costs have doubled, while delivery times have remained largely unchanged. When used responsibly, technology has the potential to improve borrowers’ experiences by reducing barriers, increasing efficiencies, and lowering costs.”58
- Incentives that encourage origination of larger rather than smaller mortgages. Policymakers can look for ways to discourage compensation structures that drive loan officers to prioritize larger-balance loans, such as calculating loan officers’ commissions based on individual loan values or total lending volume.
- The balance between systemic risk and access to credit. Although advocates and industry stakeholders agree that regulators should continue to protect borrowers from the types of irresponsible lending practices that contributed to the collapse of the housing market from 2005 to 2007, underwriting standards today prevent too many customers from accessing mortgages.59 A more risk-tolerant stance from the federal government could unlock access to small mortgages and homeownership for more Americans. For example, the decision by Fannie Mae and Freddie Mac (known collectively as the Government Sponsored Enterprises, or GSEs) and FHA to include a positive rent payment record—as well as Freddie Mac’s move to allow lenders to use a borrower’s positive monthly bank account cash-flow data—in their underwriting processes will help expand access to credit to a wider pool of borrowers.60
- Habitability of existing low-cost housing and funding for repairs. Restoring low-cost homes could provide more opportunities for borrowers—and the homes they wish to purchase—to qualify for small mortgages. However, more analysis is needed to determine how to improve the existing housing stock without increasing loan costs for lenders or borrowers.
In addition to reducing structural and regulatory barriers to small mortgage lending, a robust policy response on home financing should focus on borrowers who are acutely affected by the lack of small mortgages. Federal policymakers should look for opportunities to expand existing programs and policies for communities that have historically been excluded from homeownership and mortgage access, particularly:
- The Duty to Serve rule, which directs the GSEs to improve access to mortgage financing for borrowers of modest means in three underserved markets: manufactured housing, rural communities, and areas requiring funds to preserve affordable housing. Homebuyers in these markets often require a small mortgage to purchase a home, so the GSEs could seek to link their Duty to Serve obligations with small mortgage lending in these markets.
- Equitable Housing Finance Plans, which are three-year strategies that the GSEs develop to promote equitable access to affordable and sustainable housing for disadvantaged groups, particularly Black and Hispanic communities. People in these communities are less likely to own a home and more likely to use alternative financing than the overall population, which probably indicates an unmet demand for mortgages. The GSE leadership should consider adding an objective to their plans related to refinancing alternative financing arrangements—which the plans’ target communities disproportionally use—into mortgages.
- SPCPs, which can help lenders better serve specific populations that would otherwise be denied credit or receive it on less favorable terms. Policymakers should encourage the creation and use of these programs for underserved populations in low-cost areas where there is a special need for small mortgages and measure the impacts.
Future Pew research will explore not only important questions about the barriers to small mortgage origination but also the strategies that policymakers can use to expand the nation’s affordable housing stock, improve the habitability of existing low-cost homes, and ensure that small mortgages are more accessible and competitive in the marketplace.
Conclusion
Mortgages are vital financial tools that enable homeownership and wealth-building opportunities for millions of Americans each year. However, the scarcity of small mortgages deprives some prospective borrowers of homeownership opportunities and drives others to buy their homes with cash or risky alternative financing arrangements.
To address this problem, policymakers should aim to expand mortgage access and the overall safety of financing for low-cost homes by reducing the structural and regulatory constraints that increase lenders’ costs and make small mortgages unprofitable, and establishing strong consumer protections for alternative arrangements. In addition, federal agencies and lawmakers can reduce racial disparities in mortgage lending by prioritizing Black, Hispanic, and Indigenous households in the development and implementation of small mortgage and alternative financing programs. Together, these initiatives would help bring homeownership opportunities to more Americans.
This brief also benefited from the valuable insights of Dan Gorin, lead supervisory policy analyst, Federal Reserve Board of Governors; Roberto Quercia, professor, the University of North Carolina at Chapel Hill; Craig Richardson, professor, Winston-Salem State University; and Sabiha Zainulbhai, senior policy analyst, New America. Although they reviewed drafts of the brief, neither they nor their institutions necessarily endorse the findings or conclusions.
This brief was researched and written by Pew staff members Tracy Maguze, Tara Roche, and Adam Staveski. The project team thanks current and former colleagues Nick Bourke, Ryan Canavan, Jennifer V. Doctors, David East, Anne Holmes, Alex Horowitz, Dave Lam, Omar Antonio Martínez, Cindy Murphy-Tofig, Tricia Olszewski, Reagan Ortiz, Travis Plunkett, Andy Qualls, Ryland Staples, Drew Swinburne, and Mark Wolff for providing important communications, creative, editorial, and research support for this work.
Endnotes
- Pew defines small mortgages as loans under $150,000. For the purposes of this study, loan values are adjusted for inflation to reflect 2021 dollars unless otherwise noted. This value is based on conversations with mortgage lenders and on an observed decline in lending below that threshold over the past decade. Additionally, for the purposes of this paper, low-cost homes are those priced at less than $150,000, also in 2021 dollars. This price range is consistent with the majority of purchases financed with small mortgages. The median down payment among small mortgage borrowers is just 5%, and as a result, 75% of small mortgages are used to purchase a home under $157,500, although some borrowers do pair small mortgages with larger down payments to purchase higher-cost homes.
- Request for Information Regarding Small Mortgage Lending, 87 Fed. Reg. 60186-87 (Oct. 4, 2022); Request for Information Regarding Mortgage Refinances and Forbearances, 87 Fed. Reg. 58487-92 (Sept. 27, 2022).
- U.S. Department of Housing and Urban Development, “Financing Lower-Priced Homes: Small Mortgage Loans” (2022), https://www.huduser.gov/portal/portal/sites/default/files/pdf/Financing-Lower-Priced-Homes-Small-Mortgage-Loans.pdf.
- S. Zainulbhai et al., “The Lending Hole at the Bottom of the Homeownership Market” (New America, 2021), https://www.newamerica.org/future-land-housing/reports/the-lending-hole-at-the-bottom-of-the-homeownership-market/; U.S. Department of Housing and Urban Development, “Financing Lower-Priced Homes”; A. McCargo et al., “Small-Dollar Mortgages for Single-Family Residential Properties” (Urban Institute, 2018), https://www.urban.org/research/publication/small-dollar-mortgages-single-family-residential-properties; E. Goldstein and K. DeMaria, “Small-Dollar Mortgage Lending in Pennsylvania, New Jersey, and Delaware” (Federal Reserve Bank of Philadelphia, 2022), https://www.philadelphiafed.org/community-development/credit-and-capital/small-dollar-mortgage-lending-in-pennsylvania-new-jersey-and-delaware; L. Goodman, B. Bai, and W. Li, “Real Denial Rates: A Better Way to Look at Who Is Receiving Mortgage Credit” (working paper, Urban Institute, 2018), https://www.urban.org/sites/default/files/publication/98823/real_denial_rates_1.pdf; A. McCargo, B. Bai, and S. Strochak, “Small-Dollar Mortgages: A Loan Performance Analysis” (Urban Institute, 2019), https://www.urban.org/sites/default/files/publication/99906/ small_dollar_mortgages_a_loan_performance_analysis_2.pdf.
- Federal Financial Institutions Examination Council, Home Mortgage Disclosure Act, 2018-2021, https://ffiec.cfpb.gov/data-browser/; Zillow Group Inc., Zillow Transaction and Assessment Database, 2018-21, https://www.zillow.com/research/ztrax/. This analysis uses data on mortgage transactions from the HMDA database, the most comprehensive source of information on mortgage lending in the United States. Mortgage lenders report application-level information directly to the CFPB, which compiles and republishes the data for public use. Data on home sales was provided by Zillow through Zillow’s Transaction and Assessment Database (ZTRAX). More information on accessing the data can be found at https://www.zillow.com/research/ztrax/. The results and opinions are those of the authors and do not reflect the position of Zillow Group.
- Bankrate, “Nearly Two-Thirds Say Affordability Factors Are Holding Them Back From Homeownership” (Bankrate.com, 2022), https://www.bankrate.com/pdfs/pr/20220330-march-fsp.pdf.
- D. Sackett and K. Handel, The Tarrance Group, letter to Woodrow Wilson Center, “Key Findings From National Survey of Voters,” May 21, 2012, https://www.wilsoncenter.org/sites/default/files/media/documents/article/keyfindingsfromsurvey.pdf.
- Ibid.
- National Association of Realtors, “Profile of Home Buyers and Sellers” (2022), https://www.nar.realtor/sites/default/files/documents/2022-highlights-from-the-profile-of-home-buyers-and-sellers-report-11-03-2022_0.pdf.
- A. Acolin, L. Goodman, and S.M. Wachter, “Accessing Homeownership With Credit Constraints,” Housing Policy Debate 29, no. 1 (2019): 108-25, https://www.tandfonline.com/doi/full/10.1080/10511482.2018.1452042?casa_token=5ZjHGNxo1VoAAAAA%3AtLKWk_xn7JT3Uz2G7T_zziEuPZa0NlarhJ-tGl6m83DgxB6rq-IYSU7eZNI9mIwBAFx5o7BGbulINcjA.
- N. Bourke, T. Roche, and C. Hatchett, “Homeowners With Risky Alternatives to Traditional Mortgages Eligible for COVID-19 Relief Money,” The Pew Charitable Trusts, Nov. 1, 2021, https://www.pewtrusts.org/en/research-and-analysis/articles/2021/11/01/homeowners-with-risky-alternatives-to-traditional-mortgages-eligible-for-covid19-relief-money.
- Consumer Financial Protection Bureau, “CFPB Rules Establish Strong Protections for Homeowners Facing Foreclosure,” news release, Jan. 17, 2013, https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-rules-establish-strong-protections-for-homeowners-facing-foreclosure/.
- Goldstein and DeMaria, “Small-Dollar Mortgage Lending in Pennsylvania, New Jersey, and Delaware.”
- Zillow Group Inc., “Zillow Home Value Index (ZHVI),” 2000-22, https://www.zillow.com/research/data/.
- Some borrowers use small mortgages to purchase properties valued at more than $150,000, but Pew is primarily interested in expanding homeownership opportunities to underserved populations, so this analysis considers only low-cost properties.
- The Pew Charitable Trusts, “What Has Research Shown About Alternative Home Financing in the U.S.?” (2022), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/04/what-has-research-shown-about-alternative-home-financing-in-the-us.
- Consumer Financial Protection Bureau, “Manufactured Housing Finance: New Insights From the Home Mortgage Disclosure Act Data” (2021), https://files.consumerfinance.gov/f/documents/cfpb_manufactured-housing-finance-new-insights-hmda_report_2021-05.pdf.
- A. Carpenter, T. George, and L. Nelson, “The American Dream or Just an Illusion? Understanding Land Contract Trends in the Midwest Pre- and Post-Crisis” (Joint Center for Housing Studies of Harvard University, 2019), 9, https://www.jchs.harvard.edu/sites/default/files/media/imp/harvard_jchs_housing_tenure_symposium_carpenter_george_nelson.pdf.
- The Pew Charitable Trusts, “What Has Research Shown?”; National Consumer Law Center, “Summary of State Land Contract Statutes” (2021), https://www.pewtrusts.org/en/research-and-analysis/white-papers/2022/02/less-than-half-of-states-have-laws-governing-land-contracts.
- The Pew Charitable Trusts, “Millions of Americans Have Used Risky Financing Arrangements to Buy Homes” (2022), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/04/millions-of-americans-have-used-risky-financing-arrangements-to-buy-homes.
- H.K. Way, “Informal Homeownership in the United States and the Law,” Saint Louis University Public Law Review XXIX, no. 113 (2010): 113-92, https://law.utexas.edu/faculty/hway/informal-homeownership.pdf.
- Ibid.
- HMDA data for 2022 was not available at time of publication.
- The Pew Charitable Trusts, “Millions of Americans Have Used Risky Financing Arrangements to Buy Homes.”
- National Association of Realtors, “Realtors Confidence Index Survey” (2022), https://cdn.nar.realtor/sites/default/files/documents/2022-09-realtors-confidence-index-10-20-2022.pdf; D. Anderson, “Share of Homes Bought With All Cash Hits Highest Level Since 2014,” Redfin, https://www.redfin.com/news/all-cash-home-purchases-fha-loans-october-2022/.
- T. Malone, “Single-Family Investor Activity Bounces Back in the First Quarter of 2022” (CoreLogic, 2022), https://www.corelogic.com/intelligence/single-family-investor-activity-bounces-back-in-the-first-quarter-of-2022/.
- Federal Reserve Board, Survey of Consumer Finances, 1989-2019, https://www.federalreserve.gov/econres/scf/dataviz/scf/table/#series:Transaction_Accounts;demographic:agecl;population:all;units:median. In 2019, the median balance in the checking and savings accounts of Americans younger than 35 was just $3,240; it jumps to $5,620 for accountholders ages 55 to 64.
- Ibid.
- S. Riley, A. Freeman, and J. Dorrance, “Alternatives to Mortgage Financing for Manufactured Housing” (The University of North Carolina at Chapel Hill Center for Community Capital, 2021), https://www.pewtrusts.org/-/media/assets/2022/03/alternatives-to-mortgage-financing-for-manufactured-housing.pdf.
- Malone, “Single-Family Investor Activity Bounces Back.”
- L. Goodman, J. Zhu, and B. Bai, “Overly Tight Credit Killed 1.1 Million Mortgages in 2015,” Urban Wire (blog), Urban Institute, Nov. 21, 2016, https://www.urban.org/urban-wire/overly-tight-credit-killed-11-million-mortgages-2015.
- E. Dowdall et al., “Investor Home Purchases and the Rising Threat to Owners and Renters: Tales From 3 Cities” (Nowak Metro Finance Lab, 2022), https://drexel.edu/~/media/Files/nowak-lab/220923_InvestorHomePurchases_Final.ashx?la=en.
- Federal Reserve Board, Survey of Consumer Finances, 2019, https://www.federalreserve.gov/econres/scfindex.htm.
- Ibid.
- ATTOM Data Solutions, “Owning a Home More Affordable Than Renting in Nearly Two Thirds of U.S. Housing Markets,” Jan 7, 2021, https://www.attomdata.com/news/market-trends/home-sales-prices/attom-data-solutions-2021-rental-affordability-report/.
- D. Olick, “Here’s Where Owning a Home Is Cheaper Than Renting One,” CNBC, Feb. 7, 2020, https://www.cnbc.com/2020/02/07/where-owning-a-home-is-cheaper-than-renting-one.html.
- The Pew Charitable Trusts, “What Has Research Shown?,” 5.
- Goodman, Bai, and Li, “Real Denial Rates.”
- Consumer Financial Protection Bureau, “Request for Information: Mortgage Refinances and Forbearances,” Sept. 27, 2022, https://www.regulations.gov/document/CFPB-2022-0059-0001/comment; U.S. Department of Housing and Urban Development, “Request for Information Regarding Small Mortgage Lending,” Oct. 4, 2022, https://www.regulations.gov/docket/HUD-2022-0076/comments.
- Alan S. Kaplinsky et al., “DOJ Fair Lending Focus Continues in Settlement of Case Challenging Lender’s Minimum Loan Amount Policy by the Consumer Financial Services and Mortgage Banking Groups,” Casetext, https://casetext.com/analysis/doj-fair-lending-focus-continues-in-settlement-of-case-challenging-lenders-minimum-loan-amount-policy-by-the-consumer-financial-services-and-mortgage-banking-groups. Although some lenders might not originate small mortgages mainly because they operate primarily in high-cost areas, others may require minimum loan sizes, either formally or informally, that exclude low-cost borrowers. The U.S. Department of Justice ruled in 2012 that setting minimum loan sizes of $400,000 or more violates the Fair Housing Act and the Equal Credit Opportunity Act, but whether minimum thresholds of $150,000 are unlawful remains unclear.
- Mortgage Bankers Association, “Chart of the Week—July 23, 2021 Retail Production Channel: Cost to Originate ($ Per Closed Loan),” July 23, 2021, https://newslink.mba.org/mba-newslinks/2021/july/mba-newslink-monday-july-26-2021/mba-chart-of-the-week-july-23-2021-retail-production-channel-cost-to-originate/; Mortgage Bankers Association, “MBA: 2022 IMB Production Profits Fall to Series Low,” MBA Newslink, https://newslink.mba.org/mba-newslinks/2023/april/mba-2022-imb-production-profits-fall-to-series-low/.
- K. Graham, “Mortgage Origination Fee: The Inside Scoop,” Rocket Mortgage LLC, https://www.rocketmortgage.com/learn/mortgage-origination-fee; M. Crace, “Closing Costs: What Are They, and How Much Will You Pay?,” Rocket Mortgage LLC, https://www.rocketmortgage.com/learn/closing-costs.
- Zillow Inc., “How Is Your Loan Officer Paid?,” https://www.zillow.com/blog/how-is-your-loan-officer-paid-500/.
- U.S. Census Bureau, American Housing Survey (2021), https://www.census.gov/programs-surveys/ahs/data/2021/ahs-2021-public-use-file–puf-/ahs-2021-national-public-use-file–puf-.html.
- E. Divringi, “Updated Estimates of Home Repairs Needs and Costs and Spotlight on Weatherization Assistance” (Federal Reserve Bank of Philadelphia, 2023), https://www.philadelphiafed.org/community-development/housing-and-neighborhoods/updated-estimates-of-home-repairs-needs-and-costs-and-spotlight-on-weatherization-assistance.
- U.S. Department of Housing and Urban Development, “MBA Response to FHA RFI Regarding Small Mortgage Lending,” Dec. 5, 2022, https://www.regulations.gov/comment/HUD-2022-0076-0025; U.S. Department of Housing and Urban Development, “New America and CSEM Response to Docket No FR-6342-N-01 on Small Mortgage Lending,” Dec. 5, 2022, https://www.regulations.gov/comment/HUD-2022-0076-0015.
- To qualify, loans must meet three criteria: They cannot have negative amortization, interest-only payments, or balloon payments; the total points and fees charged cannot exceed 3% of the loan amount; and the term must be 30 years or less. They also must satisfy at least one of the following three criteria: The borrower’s total monthly debt-to-income ratio must be 43% or less; the loan must be eligible for purchase by Fannie Mae or Freddie Mac or insured by the FHA, U.S. Department of Veterans Affairs, or U.S. Department of Agriculture; or the loan must be originated by insured depositories with total assets of less than $10 billion, but only if the mortgage is held in portfolio.
- F. D’Acunto and A.G. Rossi, “Regressive Mortgage Credit Redistribution in the Post-Crisis Era,” The Review of Financial Studies 35, no. 1 (2022): 482-525, https://academic.oup.com/rfs/article-abstract/35/1/482/6136188?redirectedFrom=fulltext; Freddie Mac, “Cost to Originate Study: How Digital Offerings Impact Loan Production Costs” (2021), https://sf.freddiemac.com/content/_assets/resources/pdf/report/cost-to-originate.pdf; T. Hogan, “Costs of Compliance With the Dodd-Frank Act” (Rice University’s Baker Institute for Public Policy, 2019), https://www.bakerinstitute.org/research/dodd-frank-costs-compliance.
- K. Berry, “Fed’s Rate Hikes Are Tanking the Mortgage Market,” American Banker, Oct. 24, 2022, https://www.americanbanker.com/news/feds-rate-hikes-are-tanking-the-mortgage-market.
- Mortgage Bankers Association, “MBA Members Urge Bureau to Change Loan Originator Compensation Rule,” MBA Newslink, Oct. 24, 2018, https://newslink.mba.org/mba-newslinks/2018/october/mba-newslink-wednesday-10-24-18/mba-members-urge-bureau-to-change-loan-originator-compensation-rule/.
- Y. Benzarti, “Playing Hide and Seek: How Lenders Respond to Borrower Protection,” The Review of Economics and Statistics (2022): 1-25, https://direct.mit.edu/rest/article-abstract/doi/10.1162/rest_a_01167/109257/Playing-Hide-and-Seek-How-Lenders-Respond-to?redirectedFrom=fulltext; Consumer Financial Protection Bureau, “Manufactured Housing Finance,” 25-27.
- Consumer Financial Protection Bureau, “Request for Information: Mortgage Refinances and Forbearances.”
- Federal Housing Finance Agency, “FHFA Announces Targeted Pricing Changes to Enterprise Pricing Framework,” news release, Oct. 24, 2022, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Targeted-Pricing-Changes-to-Enterprise-Pricing-Framework.aspx. G-fees are based on the individual mortgage’s product type and credit risk attributes and help Fannie and Freddie cover administrative costs and credit losses from borrower defaults. However, these fees also increase loan origination costs.
- Americans for Financial Reform, “Joint Letter: FHFA RFI on PACE Loans,” March 16, 2020, https://ourfinancialsecurity.org/2020/03/joint-letter-fhfa-rfi-pace-loans/; G. Kromrei, “Industry to Congress: G-Fees Aren’t Your ‘Piggybank,’” HousingWire, July 23, 2021, https://www.housingwire.com/articles/industry-to-congress-g-fees-arent-your-piggybank/; L. Goodman et al., “Guarantee Fees—an Art, Not a Science” (Urban Institute, 2014), https://www.urban.org/sites/default/files/publication/22841/413202-Guarantee-Fees-An-Art-Not-a-Science.PDF.
- Federal Housing Finance Agency, “FHFA Announces Two Measures Advancing Housing Sustainability and Affordability,” news release, Oct. 18, 2021, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Two-Measures-Advancing-Housing-Sustainability-and-Affordability.aspx.
- S. Lee, “How Mortgage, Housing Industries Tackled Affordability in 2022,” National Mortgage News, Dec. 29, 2022, https://www.nationalmortgagenews.com/list/how-mortgage-housing-industries-tackled-affordability-in-2022; Wells Fargo, “Wells Fargo Announces Strategic Direction for Home Lending: A Smaller, Less Complex Business Focused on Bank Customers and Minority Communities,” news release, Jan. 10, 2023, https://newsroom.wf.com/English/news-releases/news-release-details/2023/Wells-Fargo-Announces-Strategic-Direction-for-Home-Lending-A-Smaller-Less-Complex-Business-Focused-on-Bank-Customers-and-Minority-Communities/default.aspx.
- A. McCargo et al., “The MicroMortgage Marketplace Demonstration Project: Building a Framework for Viable Small-Dollar Mortgage Lending” (Urban Institute, 2020), https://www.urban.org/research/publication/micromortgage-marketplace-demonstration-project; Hurry Home, “A New Way to Be a Homeowner,” https://www.hurryhome.io/.
- Federal Housing Finance Agency, “FHFA Announces Inaugural Housing Finance TechSprint,” news release, April 4, 2023, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Inaugural-Housing-Finance-TechSprint.aspx.
- L. Goodman, J. Zhu, and T. George, “Four Million Mortgage Loans Missing from 2009 to 2013 Due to Tight Credit Standards,” Urban Wire (blog), Urban Institute, April 2, 2015, https://www.urban.org/urban-wire/four-million-mortgage-loans-missing-2009-2013-due-tight-credit-standards.
- Fannie Mae, “Fannie Mae Introduces New Underwriting Innovation to Help More Renters Become Homeowners,” news release, Aug. 11, 2021, https://www.fanniemae.com/newsroom/fannie-mae-news/fannie-mae-introduces-new-underwriting-innovation-help-more-renters-become-homeowners; Freddie Mac, “Freddie Mac Takes Further Action to Help Renters Achieve Homeownership,” news release, June 29, 2022, https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-takes-further-action-help-renters-achieve; Freddie Mac, “Freddie Mac Announces Underwriting Innovation to Help Lenders Qualify More Borrowers for a Mortgage,” news release, Oct. 17, 2022, https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-announces-underwriting-innovation-help-lenders; U.S. Department of Housing and Urban Development, “Federal Housing Administration Expands Access to Homeownership for First-Time Homebuyers Who Have Positive Rental History,” news release, Sept. 27, 2022, https://www.hud.gov/press/press_releases_media_advisories/HUD_No_22_187.
Editor’s note: This brief was updated July 3, 2023, to recognize the peer reviewers and Pew staff members who contributed to its development.
Source: pewtrusts.org
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With sparkling blue waters, lush lakefront parks, towering skyscrapers, famous theme parks, and endless sunny days, Orlando is a fabulous place to live in Florida. Whether you’re moving to or have lived in the area for some time, you may be wondering if now is the time to buy versus rent a home in Orlando. In addition to Orlando’s real estate market conditions, there are always pros and cons to renting and buying, making your decision a little more difficult.
If you’re considering buying a home in Orlando, you’ll see the current median sale price for a home is $370,000, as of June. According to Redfin’s recent study, the estimated median monthly mortgage cost is $2,966 while the average rent price in Orlando is $2,566. For many potential homebuyers, this means renting a home costs less than buying a home in today’s market. However, it’s important to keep in mind there are still plenty of reasons why buying a home right now may be the right choice for you.
Ultimately, the decision between buying a house or renting an apartment in Orlando is personal and depends on several factors. Whether that’s your desire for flexibility or stability, your financial goals, or which one of the Orlando neighborhoods you want to live in, there is plenty to consider. We’ll help guide you along the way as you make the decision between renting vs buying in Orlando. That way, you can make the best decision for your goals.
Advantages of buying a home in Orlando
Buying a property in Orlando can offer several compelling advantages over renting. Let’s dive into some of the main advantages of buying in the current market.
Building equity
Firstly, homeownership provides long-term stability and the opportunity to build equity. Instead of paying rent that provides no return on investment, homeowners can invest in their own property and potentially benefit from appreciation in the real estate market.
Tax benefits
As a homeowner, there are a few potential tax benefits you may be eligible to receive. For example, mortgage interest and property tax payments may be tax-deductible, providing potential financial benefits. Speaking with a financial advisor or tax consultant can help you identify any possible tax benefits you may qualify for.
Freedom to design space
Owning a home also offers the freedom to personalize and modify the property to suit individual preferences without seeking permission from a landlord.
Market conditions
Finally, as Orlando continues to experience growth and development, homeowners can potentially capitalize on the area’s thriving real estate market. By purchasing a property in Orlando, individuals can secure a long-term asset while enjoying the benefits and pride that come with homeownership.
Disadvantages of buying a home in Orlando
High demand and competitive market
Orlando’s real estate market has experienced significant growth and demand in recent years, which can lead to increased competition among buyers. This high demand may result in bidding wars and inflated prices, making it more challenging to find affordable housing options. Additionally, limited inventory and a seller’s market can make it more difficult to find a property that meets your specific needs and budget.
Property insurance costs
Florida, including Orlando, is at risk of natural disasters like hurricanes. As a result, the state often experiences higher property insurance costs compared to other regions. Homeowners in Orlando may need to pay higher insurance premiums to adequately protect their property against potential storm damage or other weather-related risks. These increased insurance expenses can add to the overall cost of homeownership in the area.
Determining if you are ready to buy a house in Orlando
Deciding if buying a home in Orlando aligns with your goals can be a complicated question to answer. You’ll have to consider many factors such as your desired location, finances and budget, as well as the housing market conditions. Here are some of the main factors to consider:
1. Financial stability and affordability: Before beginning your homebuying journey, evaluate your financial situation and affordability. Consider factors such as mortgage interest rates, your credit score, and your ability to make a down payment. Lower interest rates can make homeownership more affordable, while higher rates could impact your purchasing power.
2. Long-term plans: Consider your long-term plans and how they align with buying a home in the greater Orlando area. If you plan to live in the area for a significant period, buying a home can be a good investment. However, if you’re uncertain about your future plans or have short-term goals, renting might be more suitable.
3. Housing market conditions: Consider the current state of the housing market in terms of supply and demand. If there is low inventory and high demand, it may indicate a seller’s market, which could lead to increased competition and potentially higher prices. On the other hand, if there is a higher inventory and less demand, it may be more favorable for buyers.
4. Housing preferences: Evaluate the type of property you’re looking for, such as single-family homes, condos, or townhouses, and assess their availability and affordability in the area. Consider factors like neighborhood amenities, school districts, and proximity to your workplace or desired locations.
5. Location: Orlando is a diverse metropolitan area with various neighborhoods and suburbs. Consider your preferred proximity to amenities, schools, workplaces, and entertainment options. Research the different neighborhoods to find the one that aligns with your lifestyle and preferences.
6. Employment opportunities: If you’re moving from out of the area, another factor to consider is employment. Orlando is known for its tourism industry, but it also has a diverse economy with opportunities in healthcare, technology, education, and more. Research the local job market to ensure there are opportunities in your field or industries of interest.
7. Climate: Orlando experiences a subtropical climate with hot and humid summers and mild winters. Take into account your preferences for weather and seasonal changes when deciding to move to the area.
Is it competitive to buy a home in Orlando?
If you’re considering buying a home now, you can expect to encounter some competition in the real estate market. Here are a few factors that can contribute to the competition among buyers:
Low housing inventory: One common factor driving competition is a shortage of available homes for sale in many areas. If there are fewer homes on the market, it means more buyers are vying for the same properties, which can increase competition.
High demand: Strong demand from buyers, coupled with low interest rates, can create a competitive environment. Factors such as population growth, job opportunities, and popular neighborhoods can drive up demand for housing, leading to increased competition among buyers.
Multiple offers: In a competitive market, it’s not uncommon for sellers to receive multiple offers on a property. This can lead to bidding wars, where buyers try to outbid each other to secure the home. In such situations, you may need to act quickly and offer competitive terms to increase your chances of success.
Cash offers and pre-approved financing: Buyers who can make cash offers or have pre-approved financing may have an advantage over others. Cash offers are attractive to sellers as they eliminate the risk of financing falling through, while pre-approved buyers have already taken steps to secure financing, making their offers more reliable.
Location and desirable features: Homes in highly sought-after locations or with desirable features like good school districts, proximity to amenities, or unique characteristics may attract significant competition. Buyers looking for properties with these qualities may face additional competition from others seeking similar homes.
Real estate market conditions: Market conditions can vary regionally, and some areas may be more competitive than others. It’s important to research and understand the local market dynamics, as they can greatly impact the level of competition you may encounter.
To navigate a competitive market, it’s essential to work with a knowledgeable real estate agent who can guide you through the process, help you make competitive offers, and identify suitable opportunities. Being prepared, flexible, and financially ready can also increase your chances of success in a competitive buying environment.
Advantages of renting a home in Orlando
If you’re contemplating renting a home or apartment in the Orlando area, there are a few advantages to consider:
Flexibility
Renting provides greater flexibility and mobility compared to buying a house. If you’re unsure about your long-term plans or expect to move frequently, renting allows you to easily relocate without the burden of selling a property or dealing with the real estate market. This flexibility is particularly advantageous for individuals who prioritize mobility due to job changes, lifestyle preferences, or other personal circumstances.
Lower upfront and ongoing costs
Renting typically involves lower upfront costs compared to buying a house. When you rent, you generally only need to provide a security deposit and possibly pay for any application or administrative fees. On the other hand, buying a house involves significant upfront expenses such as a downpayment, closing costs, home inspections, and potential repairs. Additionally, as a renter, you’re generally not responsible for major maintenance and repair costs, which can save you money and the hassle of dealing with unexpected expenses.
Disadvantages of renting a home in Orlando
Lack of long-term financial benefits
When you rent a house, you don’t build equity or gain potential long-term financial benefits like homeownership. Rent payments don’t contribute towards ownership or potential property appreciation. Instead, your money goes towards the landlord’s investment, providing no return on investment for yourself.
Limited control and restrictions
Renting a house often means you have less control over the property. You may face restrictions on making modifications or personalizing the space to suit your preferences. Additionally, your lease terms may subject you to rules and regulations set by the landlord or property management company. This lack of control can limit your ability to truly make the rental property feel like your own home.
Renting vs buying in Orlando: A real estate agent’s final thoughts
Historically, the greater Orlando area has been a popular destination for homebuyers due to its warm climate, attractions, employment opportunities, and overall quality of life. As you make the decision between renting vs buying in Orlando, make sure to consider the market conditions, your financial situation, long-term plans, and housing preferences.
Remember, real estate markets can be dynamic and subject to change. It’s crucial to conduct thorough research, consult with local experts, and assess your personal circumstances before making any decisions. At the end of the day, whether you decide to rent an apartment or buy a home, the Orlando area is a fantastic place to call home.
Source: redfin.com
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Home to fabulous live music, acres of outdoor recreation, and an unmistakably eclectic vibe, Austin is an amazing place to live. If you’re considering moving to Austin, then you may be wondering whether to rent versus buy a home in the area. With Austin’s real estate market conditions, there are pros and cons to both sides of the debate, making it that much harder to decide between renting or buying a home.
If you’re looking to buy a home in Austin, the current median sale price for a home is $468,000 as of July. According to a new Redfin study, the average rent price in Austin is $2,951, while the estimated median monthly mortgage cost is $3,801. For many, this means that renting a home costs less than buying a home in today’s market. However, there are still plenty of reasons why buying a home may be the right choice for you this year.
At the end of the day, making the decision between buying a house or renting an apartment in Austin depends on a variety of factors. From financial benefits and long-term plans to flexibility and what Austin neighborhood you want to live in, there are plenty of factors to consider. We’ll help guide you through the debate of renting vs buying in Austin so you can make the best decision for your goals.
Advantages of buying a home in Austin
Decreased competition
One of the main advantages of buying a home in Austin today versus possibly next year, is that competition is down. As interest rates have increased, investors and those without a real need to buy a home have left the housing market, easing the competition for other homebuyers. Less competition gives potential homebuyers more of an opportunity to find a home they love rather than just finding somewhere to live and having to compromise on location or size.
Rising home values
Homes in Austin have gone up in value every year since 2010 and currently show no signs of stopping. If you rent for a year, and wait to buy, you’ll most likely be dealing with more competition and higher home costs. Buying gives you the opportunity to create equity you can use later, to move up, to make updates, or just to create wealth.
Stable monthly payments
Buying a home with a fixed-rate mortgage means that your monthly mortgage payments stay the same over the duration of your mortgage. While other monthly expenses may fluctuate, you’ll have peace of mind that your mortgage payments will stay stable.
Tax benefits
As a homeowner, you can receive tax benefits under the US tax code. This means that if you file an itemized tax return (rather than taking the standard deduction) you may be eligible for certain tax deductions. You may also be eligible for exclusions as a homeowner. Here are a few of the tax benefits of homeownership.
- Mortgage interest deduction: If you’re a homeowner with a mortgage, you can typically deduct the interest you’ve paid on a mortgage on your tax return – subject to limitations.
- Capital gains exclusion: When you buy a home, chances are the time will come when you decide to sell your house. If you sell your home, you may be eligible for a capital gains exclusion. A capital gains tax exemption means that a portion of the profit you make from selling your home may be exempt from federal income tax. This is often up to $250,000 if you’re single or $500,000 if you’re married filing jointly.
Keep in mind that tax laws can change over time and tax benefits accessible to homeowners depend on your individual circumstances. It’s important to consult with your tax professional to understand what tax benefits may apply to you.
Disadvantages of buying a home in Austin
Home maintenance
While it isn’t specific to Austin, one of the most common disadvantages of owning a home is maintenance. For example, you’ll have to spend your free time managing lawn care and other small items in your home, or pay to have someone maintain them for you.
Competition for move-in ready homes
Another disadvantage is competition, specifically for move-in-ready homes. If you want a home that’s 100% move-in-ready and updated with the latest features and trends, you’ll most likely have a multiple offer situation where you may have to give away some of your contingencies or pay more than the market price.
Large upfront costs
If you’re looking at your finances, it’s important to remember that buying a home costs more than just the down payment. You’ll need to factor other costs into the equation such as closing costs, home inspection fees, and appraisals, when determining how much house you can afford.
Reach out to a few mortgage lenders to get a pre-approval so you can gain insight into your financing options and other costs you may need to consider. With the right planning, exploring downpayment and closing cost assistance programs, and the support of your real estate agent, you may find out now is the right time to buy your first home.
Additional monthly payments
While your mortgage payment remains the same from month-to-month, there are other recurring payments you may need to factor into your budget as a new homeowner. Let’s look at some of these expenses:
- Utility costs: While many renters are used to paying utility bills such as water, heating and air conditioning, sewer, garbage, and internet, among others, sometimes these costs were included in your monthly rental payments. As a homeowner, you’re responsible for these costs each month, so it’s important to budget these additional expenses into your monthly budget. In Austin, the average monthly energy bill costs around $156. A cost of living calculator can also help you get an idea of how much to set aside each month.
- Insurance and property taxes: At closing, you’ll pay a portion of your property taxes as well as homeowners insurance. However, these are recurring costs that you’ll pay as long as you own the home. Keep in mind that property taxes can change due to your home’s location, value, and additional changes in the tax code.
- Homeowners association fees: While this cost may not apply to everyone, if you purchase a property that belongs to a homeowners association (HOA), you’ll likely pay monthly dues. These costs can vary widely, from $100 to over $1,000, and typically cover the cost of neighborhood maintenance.
Determining if you are ready to buy a house in Austin
Deciding if buying a house in Austin is right for your goals can be a complex decision. It often requires careful consideration of many factors. Here are some of the key factors to consider when determining if now is the right time to buy a home:
- Financial stability: Before starting your homebuying journey, it’s important to have a stable income and a good credit score. You’ll also need to have some additional funds saved for a down payment, closing costs, home insurance, and other expenses that go into buying a home. It’s also a good idea to build an emergency fund in case you have any unexpected expenses.
- Long term commitment: Compared to renting, buying a home is a significant investment – both financially and over time. If you’re not planning to stay in Austin for a longer period of time, it may be a better idea to continue renting until you’re ready to stay in the area long term.
- Housing market conditions: Austin’s housing market is somewhat competitive, so it’s important to know today’s market conditions – and what you can afford.
- Personal goals: Lastly, you’ll want to consider your own personal goals and evaluate your priorities before making a decision to buy a home. Are you looking for more space or a big backyard? Do you want a new construction home or an older property with character? Decide what’s important to you in the home search and if buying a home in Austin aligns with your goals.
If you’re unsure whether you’re ready to buy, consider consulting with your real estate or financial advisor to fully understand your options.
Is it competitive to buy a home in Austin?
In Austin, the market is somewhat competitive, but this competition is mainly for updated homes. New construction properties in areas with higher rated schools are almost non-existent these days. As a result, you’ll find more competition on remodeled and updated homes, as well as homes in areas with high school ratings. In more competitive areas, that means you’ll likely need to pay market price or go up to 10% over market price or value.
On the other hand, you’ll find less competition on new construction homes that are farther outside of town. There is also less competition on homes that need cosmetic updates, without any true repairs needed.
Advantages of renting a home in Austin
No maintenance costs
An advantage of renting in Austin is no maintenance costs. Your landlord will most likely take care of routine maintenance and yard work, so you don’t have to take the time to do it. If you’re relocating to Austin, it’s also important to know that home maintenance can be vastly different, especially if you’re moving from an area with a more mild climate, like Seattle or Los Angeles.
Lower monthly payments
When renting, you can typically find a place closer to the city or a larger home, with a lower monthly payment than a new mortgage, especially with current mortgage rates. Rentals typically lag behind home values when it comes to monthly rent, meaning you may be able to find a rental home that fits your budget better.
Flexibility
Renting an apartment or home offers you more flexibility – especially if you’re not sure about living in Austin for an extended period of time. Whether you sign a year-long lease or a month-to-month lease, renting gives you additional flexibility that owning a home doesn’t. Renting gives you the opportunity to test out different Austin neighborhoods or move to another city at the end of your lease. In contrast, homeownership means you’re more committed to living in your home for at least a few years.
Disadvantages of renting a home in Austin
Risk of rent increasing
Depending on the type of lease or rental agreement you have, your rent could go up, increasing significantly. If you’ve signed a year-long lease, your rent won’t increase until it comes time to renew. At that point, you may face minimal to substantial rent increases. Or if you have a month-to-month lease, your landlord may increase your rent each month, leaving you with a higher rent price.
Inability to build equity
As a renter, you’re paying into someone else’s equity and, unfortunately, not receiving anything in return. Since someone else owns the property, you aren’t eligible to receive any tax benefits or build any equity over the duration of your lease.
Limited control over design
Regardless of whether you’re renting a home or apartment, you can’t personalize the space much. If you don’t like the paint color, you’ll have to look for alternatives. Or, if your landlord allows, you may be able to paint, but when your lease ends you’ll have to repaint the space to the original color. Similarly, if you want to make any permanent changes to the layout, you’re out of luck. As a homeowner, you’ll have the freedom to make any minor or major changes to the space.
Renting vs buying in Austin: A real estate agent’s final thoughts
In my opinion, now is a great time to buy. This is the least amount of “no multiple offer situations” I’ve seen in years. You can truly get an amazing deal right now, since rates seem to have scared a lot of people off. Austin, like a lot of cities, is in a major housing crisis, and until the builders can catch up to the number of people moving here, we’ll stay in a more competitive seller’s market.
At the end of the day, whether you rent or buy in Austin, the area is a wonderful place to call home. If you’re just beginning to think about buying a home, make sure to lay out all your finances and understand what you can afford now and in the years to come.
Source: redfin.com
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So you want to build a new home — but you’ve got sticker shock. In researching cost-effective options, you may have discovered modular and manufactured homes.
These home types are typically more affordable than traditional new construction, known as “site-built” homes. The Manufactured Housing Institute reports that a manufactured home costs half as much per square foot as a site-built home. For modular builds, a 2017 study by the Terner Center for Housing Innovation at the University of California, Berkeley estimates construction savings of at least 20%.
Depending on land costs and the model you choose, a new manufactured or modular build might even cost less than the average existing home.
Modular and manufactured homes are both types of prefabricated, or “prefab,” homes. That means they’re built indoors at a factory, then transported to the building site. But just because they both start out in a factory doesn’t mean they’re the same thing.
Let’s explore the differences between these two home types.
Definitions: Modular vs. manufactured homes
What is a modular home?
A modular home is factory-built in large, three-dimensional pieces known as modules. When the modules leave the factory, they are up to 90% complete. The finishing touches happen at the building site, where the modules are attached to a permanent foundation and each other. Then, the finished home is inspected to ensure it meets local building codes.
What is a manufactured home?
A manufactured home is what you might think of when you hear the term “mobile home” or “trailer.” However, that terminology is considered outdated. Today’s manufactured homes come in a wide range of designs and styles.
Like modular homes, manufactured homes are built in factories. Depending on their size, they are transported to the building site in one piece, known as a single-wide, or several pieces, known as a double- or triple-wide.
Unlike modular homes, manufactured homes are attached to a permanent chassis. This is a metal frame that can be attached to wheels; that’s where the term “mobile home” comes from. The chassis cannot be removed, but you can remove or cover up the wheels.
Manufactured homes are built to national building standards set by the U.S. Department of Housing and Urban Development (HUD), called the HUD Code.
Did you know…
Technically, the term “mobile home” only applies to factory-constructed homes built prior to June 15, 1976. That’s when the HUD Code went into effect. The HUD Code set federal standards for safety and durability of manufactured homes.
Pros, cons and differences
Compared to new site-built construction, modular and manufactured homes are a more affordable path to homeownership. Here are some things to consider when deciding between the two:
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Cost and resale value: A manufactured home typically costs less than a modular home. While manufactured homes have come a long way in terms of quality, they still can depreciate in value over time, similar to an automobile. Modular homes generally change in value with the market similar to site-built homes.
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Building codes: Manufactured homes are built to the HUD Code. Modular homes follow the same state and local building codes as site-built houses.
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Size and durability: Available sizes vary, although modular homes offer more ability to customize layouts. Manufactured homes don’t hold up as well in high winds or hurricanes compared to modular homes.
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Portability: Manufactured homes must be affixed to a steel chassis. Depending on their size, they can be built and transported in full from the factory. Modular homes do not have a chassis. They are built in pieces, transported and assembled on-site.
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Construction efficiency: Modular and manufactured homes share some advantages over site-built homes. Indoor construction pretty much eliminates weather delays. Assembly-line construction is also faster and cheaper. Less construction waste saves home buyers money, and with efficiency gains, you’ll likely move in sooner.
Loans and financing
Modular homes
While a modular home is being built, you might have to make up-front or installment payments to the builder. These can be paid in cash or through a construction loan. Once construction is complete on a modular home, it can be financed with a traditional mortgage — just like a site-built home.
Manufactured homes
Manufactured homes are not always eligible for traditional mortgages. Here are some options:
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Traditional mortgages: To qualify for a mortgage, you must own the underlying land and have the manufactured home titled as real property.
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FHA Title 1 loans: If your home doesn’t qualify for a mortgage, the Federal Housing Administration (FHA) offers Title 1 loans to finance manufactured homes. With an FHA Title 1 loan, the buyer is permitted to lease the land where the home resides, such as in a manufactured home community — sometimes called a mobile home park.
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Chattel loans: Often, buyers finance manufactured homes using chattel loans. A chattel loan is a direct form of financing for personal property, similar to an auto loan. However, these loans typically have higher interest rates than traditional mortgages. The Consumer Financial Protection Bureau reports that around 42% of manufactured home owners use a chattel loan to finance their purchase.
Summary: Key differences
Manufactured home |
Modular home |
Site-built home |
|
---|---|---|---|
Cost to build |
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Type of foundation |
Semipermanent (e.g. pier and ground anchors) or permanent. |
Permanent. |
Permanent. |
Portability |
Yes. (Has a chassis that can be attached to wheels to move the home.) |
No. (Once modules are delivered, they are permanently attached to each other and the foundation.) |
No. (Built entirely on-site.) |
Building code |
International Residential Code (local building codes). |
International Residential Code (local building codes). |
|
Options to customize |
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Durability |
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Financing (after construction) |
Chattel loan, FHA Title 1 loan or traditional mortgage. |
Traditional mortgage. |
Traditional mortgage. |
Value over time |
Typically decreases. |
Typically increases. |
Typically increases. |
Modular vs. manufactured: Which is right for me?
A manufactured home is less expensive and can get you to your goal of homeownership sooner, especially if you live in a rural area where affordable housing is scarce. Citing January 2023 data, the U.S. Census Bureau reports that the average cost of a new manufactured home is $126,100. However, future home equity is less predictable for manufactured homes. Typically, their value depreciates over time. But it also could hold steady, depending on your local real estate market. Other factors, such as if you own the land underneath — and how you landscape it — affect long-term value, too.
A modular home is a larger up-front investment, but the home value typically grows over time, like that of a site-built home. Modular construction is sturdier than that of manufactured homes, too. If you finance a modular home using a construction loan, you might need a higher credit score and lower debt-to-income ratio to qualify, compared to credit score requirements to buy an existing home. That’s because you don’t have a finished home to use as collateral, like you can in a traditional mortgage.
Alternatives to modular and manufactured homes
If you’re looking for an affordable path to homeownership, here are other options to consider:
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Townhouses or condominiums: If you don’t mind sharing walls with your neighbors, buying a townhouse or condo can help you build equity at an affordable price point. You might have to pay homeowners association fees, though, so account for that when budgeting.
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Site-built homes: If you’re committed to a new build, you’ll pay more per square foot for traditional construction compared to a modular or manufactured home. However, you can cut costs by building a smaller home and opting for modest finishes.
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Tiny houses: Sized around 400 square feet or less, tiny houses can be set on wheels or a permanent foundation. Minimalist living is a lifestyle shift, so consider the pros and cons before you downsize.
Source: nerdwallet.com
Apache is functioning normally
Late last week, the Supreme Court unanimously ruled that a decades-old Minnesota property tax law was unlawful when it allowed the government to seize wealth from an elderly Black homeowner. The decision in Tyler vs. Hennepin County serves as a warning about legal defects in other property tax laws that unfairly harm communities of color, including California’s own Proposition 13.
The Minnesota case began when Geraldine Tyler failed to pay the taxes on her longtime Minneapolis home. Over several years, the tax debt accumulated to $2,300, exploding to $15,000 when penalties and fines were added. The county seized her condominium and sold it, keeping the entire proceeds — $40,000 — not just the $15,000 she owed.
The Supreme Court proclaimed that this money grab was unjust and unconstitutional under the 5th Amendment’s takings clause. It rejected Hennepin County’s legal reliance on the 13th century Statute of Gloucester, a law that Justice Neil M. Gorsuch characterized during oral arguments as being “about lands owned by the feudal lord and what happens when a vassal fails to provide enough wheat to his lord.”
The court’s determination that what happened to Tyler didn’t meet constitutional standards echoes and revives a concern raised in the 1990s about Proposition 13.
California’s tax-assessment limits demand radically different property taxes from owners of similar properties, based only on their time of purchase. Thirty years ago, Stephanie Nordlinger balked at paying nearly five times in property taxes for her Los Angeles home as longer-settled neighbors. An unmoved Supreme Court majority held that the differential treatment had a rational basis, but Justice John Paul Stevens disagreed.
In his dissent, Stevens concluded that Proposition 13 created “a privilege of a medieval character: Two families with equal needs and equal resources are treated differently solely because of their different heritage.”
The Supreme Court’s blessing in Nordlinger vs. Hahn upheld Proposition 13’s legality and established its feudal — and unfair — nature.
Proposition 13 raises race discrimination concerns. Assessment caps benefit long-standing homeowners — who are often white — at the expense of their more diverse neighbors who arrive later. The effects of such property taxes on homeownership’s demography suggest violations of the 1968 federal Fair Housing Act. Recent estimates show that Proposition 13 gives the average homeowner in a white neighborhood of Oakland, for example, a tax break of nearly $10,000 each year — more than triple the break provided to average homeowners in Latino neighborhoods, and about double those in Black and Asian neighborhoods in Oakland.
Ironically, people just like Tyler were the original faces of the battle to enact Proposition 13 in California and similar measures around the country. Activists in the 1970s and 1980s invoked stories of elderly widows losing their homes to convince voters that property taxes should be based on a home’s purchase price and allowed to rise just 2% a year from there, regardless of market value.
But such assessment limits have not lived up to their promise to protect homeowners. Michigan also limits the amount that an owner’s assessment can rise. Yet as real estate values declined in Detroit, those limits did not ensure that assessments fell to match, leaving low-income Black homeowners with inflated, unaffordable taxes. Like Tyler in Minnesota, many residents were forced out of their homes through tax foreclosures.
In California, Proposition 13’s overbroad system protects the propertied at a high cost to more diverse, first-time buyers. People may stay put to hold on to a tax advantage, limiting inventory and driving up home costs. Parents can also pass low tax assessments on to their children, exacerbating the problem.
The California Housing Finance Agency notes that “for the entire 2010s, California’s Black homeownership rate has been lower than it was in the 1960s, when it was completely legal to discriminate against Black homebuyers.”
While Proposition 13’s precise inequitable effects are complicated, more inclusive and less legally tenuous alternatives exist.
There are other tax reforms that could protect low-income and elderly homeowners without hamstringing cities’ tax bases and enriching wealthy owners.
Philadelphia allows low-income senior citizens to freeze their property taxes, and low-income families to spread rapid assessment increases over several years. In Massachusetts and some Connecticut towns, low-income homeowners can defer part of their property tax bill, which is paid off upon the home’s sale. California has its own property tax postponement program, which it should expand, instead of relying on Proposition 13.
The Supreme Court’s rejection of Minnesota’s greediness reminds us that the courts are watching as states tighten the vise of property tax systems on the poor and racially diverse. To be sure, Proposition 13 does not result in unconstitutional “takings.” But the concerns that motivated the court in Tyler vs. Hennepin County also apply here. And given the court’s willingness to reverse long-held constitutional precedent, perhaps the Nordlinger decision itself will be due for reconsideration.
California’s admirable protection of struggling, older homeowners can occur through less discriminatory and irrational means. Tax injustice shows up not only in the foreclosure of an elderly Black woman’s $40,000 Midwest condominium but also in the inability of diverse, immigrant families to purchase a $400,000 condominium in Mid-City.
Shayak Sarkar is a professor of law and an economist at UC Davis. Josh Rosenthal is legal director of the Public Rights Project, a civil rights and economic rights nonprofit.
Source: latimes.com