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Rental Markets create a squeeze gate for home purchases

Mortgage and Lending with CBCMA / CBC Mortgage Agency

Two recent articles analyze the Rental Market and the affordability of renting vs. buying.  The first, a housingwire article, cites a Freddie Mac survey that 82% of renters now view renting as more affordable than homeownership.  Compare this article to a recent Rent Report by Zumper; it states that some markets such as the most expensive, San Francisco, CA, command a two-bedroom rental rate of $4720 a month!  When rental markets are strong, there is typically a lack of affordable housing or financial ability to obtain a mortgage.  Boise, Idaho, for example, suffers from a lack of affordable housing because the average rental rate for a two-bedroom there is $1100, but that payment amount only yields a $185,000 mortgage, and unfortunately, there aren't many choices in that price range.  


Here are a few solutions for would-be home owners that are getting the squeeze from a strong rental market:


1.  Move 20 miles out.  What you trade for time in commute and gasoline you gain in home equity and quality of life.  If your car gets 20 MPG, you'll spend $6 x 20 working days = $120 a month.  Using our Boise example, if you buy a home for $185,000 that is a little further out, you will earn about $3100 a year in equity for the same rental payment, after gas cost you net about $1600.  The nice thing is this asset appreciates over time, and you have to pay to live somewhere anyway, so why not pay on something that builds wealth?  This may not always be a solution, urban areas, higher gas prices, or a much larger metropolis may make the commute untenable, but typically you can sacrifice convenience in location to build an asset.  Besides, wouldn't it be nice to catch up on your podcasts or audiobooks?


2.  If your credit isn't up to par, then watch a few videos, sign up for Credit Karma or Credit Sesame, and make a plan.  Paying off credit cards or old bills, disputing bad information, even signing up for a secured credit card can make an improvement in your score in less than a few weeks.  620 is the absolute minimum for most markets for reasons described below.  Many times, loan officers are wizards at getting things done with your credit--find the right one.


3.  Use one of the many Housing Finance Agencies to provide a down payment.   Most states or local municipalities have some kind of housing program that assists with down payment, again a loan officer can help find the options.  For those states without a DPA (Down Payment Assistance) program, the Chenoa Fund is a nationally-chartered Housing Finance Agency that works in every state except NY.  They offer a 3.5% down payment on FHA loans but require a 620 score to qualify (above).  It is completely possible, with the correct home, to pay nothing in closing costs and no down payment.


Hopefully, armed with a few of these ideas, you won't feel the pinch of the rental-market squeeze gate.  If you have questions about Chenoa Fund, please email me at shawn.king@chenoafund.org.




Posted by

Shawn King

Chenoa Fund, CBC Mortgage Agency



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