How to Transition From Renting to Owning
Presented By…
The topic of this blog will be about one of the biggest transitions that people will EVER make in their lives, and that’s going from renting a home to owning a home. To help me answer some of the most commonly asked questions that people have about this topic, the first person that came to my mind was the man, the myth, the legend…Jason Lerner!!! Here’s a quick rundown of who Jason Lerner is so that you guys know who we’re dealing with here:
-Is currently the Area Development Manager for all of the George Mason Mortgage branches in Maryland
-Has been in the mortgage industry for over 18 years
-Has personally originated over $1.25 billion in residential mortgage loans
-Has originated roughly 6,000 residential mortgage loans
Holy guacamole…this guy is on a whole other level! I’m sure that you guys can now see that we’re talking to an expert here and not a novice. So with that being said, let’s get into the questions!
1. Why own a home versus renting a home?
This is a question that I know a lot of my clients do a lot of soul searching with and it's one that I remember doing soul searching on prior to purchasing my first home. There are really two main factors that come into play when people make the decision to transition from renting to owning.
First off are the financial factors - Owning a home is a wise investment opportunity, with homeowners receiving substantial gains in equity with how robust the markets have been over the years. But it also acts as a forced savings account. If you have a traditional mortgage that pays down principal and interest, the mortgage “forces” you to save because you are forced to pay your mortgage every month if you want to keep your property. A percentage of each mortgage payment goes towards the principal, which can be considered savings.
Then there are the emotional factors. Owning a home provides you with so much freedom. You have almost complete control over making changes to your home. There are lots of studies that show how owning a home really helps someone’s own well-being, but also their family development.
2. When is the right time to transition from renting to owning a home?
There are probably different answers for different people at different stages of their life. Coming back to the two factors that come into play when someone decides to go from renting to owning, you need to decide if the financial and emotional factors of owning a home make sense to you right now.
From an economic perspective, we're in the middle of this perfect storm of incredibly low interest rates, and a market that’s expected to continue to grow in the long term. As a result, the folks that I work with right now are recognizing that their mortgage payments are actually lower than what they were previously paying in rent, which means they have additional funds to save or invest.
That said, from an emotional perspective, there's also a lot of other questions that people should be asking themselves about their own personal situation before committing to purchasing a home. I would ask myself before purchasing a home, what does my career path look like? Do I have job stability? Am I going to be in this geographic location for three, five years?
3. What are the steps in purchasing a home?
Probably the most important step in purchasing a home is identifying a realtor and a lender that care about you and want to do what's best for you.
Once you've done that, it's important to get pre-qualified because it gives you an idea of what your mortgage payment is going to be and how much money you need to bring at settlement. I think a lot of people do it backwards, where they get really emotional about purchasing a house without understanding all of the financial factors that are involved. To me, I think the financial factors have to be the foundation and all the other fun stuff happens afterward.
4. What are the upfront costs of purchasing a home?
In general, there's going to be a down payment requirement. The minimum requirement for a conventional loan is 3% of the purchase price and the minimum requirement for an FHA loan is 3.5% of the purchase price. However, there are many ways to obtain 100% financing through a VA loan, a USDA loan, or through the many grant programs that are out there.
There are also closing costs. In general, the closing costs are in the ballpark of 3.5% to 4%, maybe a little bit higher depending on the area. But there are lots of ways to lower your closing costs through grant programs or through a wonderful negotiator like you, George, by getting the seller to contribute towards your closing costs. It's a tough market to do that right now, but I'm starting to see more of that being reintroduced to our market.
5. What are the benefits of being a first-time homeowner?
So the main benefits are the tax breaks and eligibility for different grant programs. In Maryland, the county charges transfer taxes, and the state charges transfer taxes. But as a first-time homebuyer, you become exempt from that state transfer tax, so it eliminates about 0.25% of the closing costs.
There are some fantastic grant programs that help cover a significant portion of a buyer’s closing costs, and I think my company is one of, if not the top participants in a lot of the state-specific and city-specific grant programs.
6. How can renters prepare themselves to purchase a home?
To best prepare yourself, I would start by working with a mortgage lender to figure out what price range you’re able to afford. Also, you should know what your credit score is because that’s one of the factors that let you know whether or not you’re able to qualify for a loan.
It's important to make sure not only to have enough money saved up for your down payment and closing costs but also for all of the additional expenses that come with owning a home. I want to make sure that you're coming from a really strong position when purchasing a home.
It’s Time to Take a Leap of Faith!
Making the transition from renting to owning a home is a big deal, which is why you need a rockstar mortgage lender to help guide you through that process. If you think that you’re ready to take a leap of faith, then I highly recommend that you reach out to Jason Lerner, who I would most definitely classify as a rockstar mortgage lender, so that you can get yourself pre-qualified, and begin the search for your dream home!
Jason Lerner’s Contact Information: https://www.gmmllc.com/jason-lerner/
Side Note: This interview has been slightly condensed for clarity purposes
Here’s the video of my interview with Jason Lerner.
