How to Avoid the "Renter's Trap"

Many Chicago residents have succumb to the inevitable "renter's trap" - that is, many renters get caught up in an a cycle where increasing rents make it impossible for you to save an appropriate amount of money for a down payment.

Why is there a "renter's trap"?

A recent Zillow press release leaves us with no surprise as to why that is the case:

  1. Nationally, renters signing a lease at the end of the second quarter paid 29.5% of their income to rent
  2. U.S. home buyers at the end of the second quarter could expect to pay 15.3% of their incomes to a mortgage on the typical home
  3. Renters pay more than the average of 24.9% that was paid in the pre-bubble period, while buyers actually pay far less than the 22.1% share homeowners devoted to mortgages in the pre-bubble period

Zillow Chief Economist Dr. Stan Humphries elaborates:

"The affordability of for-sale homes remains strong, which is encouraging for those buyers that can save for a down payment and capitalize on low mortgage interest rates…As rents keep rising, along with interest rates and home values, saving for a down payment and attaining homeownership becomes that much more difficult for millions of current renters.” 

How to break the cycle

The most important way you can intelligently break out of the renter's trap is to, first and foremost, be informed about what options there actually are out there.

In fact, while many Millennials and other prospective homebuyers believe they aren't qualified in terms of credit scores or savings, in reality, many are actually quite qualified!

Here's what Freddie Mac has to say:

  1. A person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”.
  2. Freddie Mac's purchase of mortgages with down payments under 10 percent more than quadrupled between 2009 and 2013.
  3. More than one in five borrowers who took out conforming, conventional mortgages in 2014 put down 10 percent or less.

The bottom line?

Have a professional help you determine whether or not you are actually eligible to buy a home - or not. They will help devise a plan to get you on the road to owning your first home and breaking out of the increasingly expensive renter's trap.

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