College Student: “Should I Buy or Rent?”

A college student posed this great question in Trulia: 

“I’m a college student looking to move to Sac this winter. Should i rent or buy? Property around Sac State is expensive…  I need some help on what i should do cause renting is more expensive then a mortgage would be”.

Here was my response:

I would buy if you can.
Why not email me these basic items and I will tell you how much of a loan you can qualify for and what your payment options are:
1. Gross, (before taxes) income year-to-date and for 2013;
2. Amount of cash you have for down payment & costs (including family gift $);
3. What is your minimum, monthly, required debt payment for all, unpaid card balances, car loans etc.;
4. Whether you have had any late charges, or collections.

I will email your results back along with a couple of outstanding, buyer-real estate agents contact info.

Same offer to anyone: you could send me the same info and I will provide you with the results listed above.

The Cost of Waiting to Buy

It is getting harder to find homes for those buyers we have been working with for months.  The entry level prices are rising and qualifying for prospective buyer’s  is shrinking.    

After looking at several Hollister homes I heard the frustrated buyer sigh:  “I think we’re just going to wait to buy a home“.  I tried to reason with him regarding rising prices and the likely increase in home loan rates.  He was just too disappointed to hear anything right then.  So, this post is my therapy for today’s weary home buyers. 

Home loan rates WILL go up.  It’s only a matter of when will they start.  All of the attempts to stave off a sick economy cost money and will begin to push rates higher.  As they rise, ‘purchasing power’ drops:                      

Let’s say my buyer waits 6 months and the rates then are up .5%.  His $300,000 loan will cost $92 MORE each month than he could get today.  To qualify then he will have to earn $225 MORE per month for the same loan he could get now.  If his income hasn’t changed his purchasing power will drop by $17,150!

If the rates go up by 1.0% the payment will jump up by $192 per month for the same $300,000 loan he could have gotten today.  $192 PER MONTH!  Yikes!   His income will need to be $460 more per month to qualify for the same loan he could have gotten today.  With no change in income, his  purchasing power will drop by $32,800!

Postponing the purchase of your home doesn’t make cents.  Get a good night’s sleep and go back at it tomorrow.  Afterall, somebody is buying these homes.  Why not you?

Buying Parents or Grandparents Home? Save on Property Tax.

A friend was in the process of buying his parents home when he asked me if there were any tax or insurance benefits resulting from this type of sale.  I startled him when I blurted out a quick ,”YES!”

Thanks to a little-known section of the California Constitution (Sec. 2 of Article X111) or, more commonly referred to as “Prop. 58” the sale or transfer of a principal residence between parents and children is NOT subject to reassessment. Translation: My friend could purchase his parents home and continue their low property taxes as his own.  The savings was huge!  With a sales price of $480,000 the taxes would have been $6,002/yr. but employing Prop. 58 the parents taxes: $1,876 became their son’s property taxes.  In this case that is a whopping $4,126/yr. savings!

Not only did my friend experience a monthly savings of $344 in property tax but he more easily qualified for his home loan.  He needed $905 LESS income to qualify because his Prin., Int., TAXES, & Ins. was so much lower.

There is a similar opportunity when grandparents are selling to grandchildren (Prop. 193).

Of course there are conditions but they are not difficult to satisfy.

So here is an opportunity to keep the good ole home in the family and bucks in the kid’s pocket.