Real NEastate: Buying could be cheaper than renting

Q: My 29-year old daughter is renting a house around the corner from me in East Mayfair for $850 a month. She has a landlord who does nothing for her, and she wants to buy a home but I’ve told her she needs to save 20 percent to put down on a house. Some mortgage broker told her she only needs 5 percent. Is this true?

A: Depending on her credit and the mortgage product for which she gets approved, your daughter may only need as little as 3.5 percent of the purchase price of a home. And her mortgage could conceivably be lower than what she’s paying in rent. I’ve recently sold homes with lower monthly mortgage payments than your daughter’s rent in East Mayfair.

Today there is an affordability factor that is at stake by waiting. I don’t know how much your daughter has saved in the bank now but it may take her a while to save up 20 percent of the purchase price of a house. In the meantime, there’s a likelihood mortgage rates could go up higher. For every 1 percent mortgage rates go up it costs a homebuyer 10 percent more for the same house. Saving 20 percent to put down could end up being a wash.

Homes and mortgages have not been this affordable in decades. The days of waiting are behind us, and may even lie ahead eventually. But in 2011 in this market, with the rates as low as they’ve been, there’s no reason to wait and save 20 percent to buy a home in East Mayfair unless you have to. If your daughter is responsible and financially stable, she would be smart to take advantage of today’s market before she ends up paying more for the same house a few years down the road.

Stacey McCarthy is a real estate agent with the McCarthy Group of Keller Williams. Her Real NEastate column appears every Wednesday on NEastPhilly.com. See others here. Read other NEast Philly columns here.

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