Rent vs. Buy?
The Choice is Easy With REX HomeBuyer
In many popular housing markets REX HomeBuyer makes owning more attractive than buying on a monthly housing expense basis.
http://www.trulia.com/blog/trends/millennials-rent-or-buy/
Most rent vs. buy calculators will tell you it’s cheaper to buy than rent. Whatever market you look at and whenever you look, the answer is always the same: Buy now! When you factor in likely home price appreciation, rent increases and the mortgage interest tax deduction, buying will always look like a good bet. But the gains from price appreciation are long term and don’t make it any easier for you to fork over a huge check every month. When you look at the monthly payment of principal, interest, taxes and insurance, the picture isn’t quite as clear, and after challenging some of the loan assumptions, it becomes downright muddy. What about the assumption that every homeowner can front a full 20 percent down payment? A lot of ink has been spilt reporting on how difficult it is for millennials and first-time homebuyers to assemble 20 percent down. Given the amount of student loan debt and cost of living in the most populous areas, the assumption may not be realistic. In fact, in recent reporting the median down payment is somewhat less than that at around 14 percent, with first-time homebuyers typically putting down less than repeat buyers, and those buying less expensive homes putting down smaller percentages than for higher priced homes. Low down payments mean that buyers have to borrow more money, driving up their monthly payment and requiring mortgage insurance, which drives it up even more. In coastal markets like Seattle and the San Francisco Bay Area, rents are already so high that even a little increase in monthly housing expense may be too far a stretch for a prospective buyer. When you factor in the real world cash flows, buying doesn’t always look so hot.
REX HomeBuyer changes the equation completely. By providing up to half the down payment needed to buy a home FirstREX allows potential home buyers with only 10 percent down to double their down payment to 20 percent and avoid paying costly mortgage insurance. In fact, the monthly payment on an 80/10/REX HomeBuyer is typically 15-20 percent less than the payment on a 90 percent loan with mortgage insurance. Not only does this option provide more monthly cash flow for the purchaser, but also the incredible opportunity to start building equity in a home.
In highly desirable markets, such as Seattle and Boston, the opportunity to double a down payment to 20 percent and eliminate mortgage insurance means the ability to save money on monthly housing costs when compared to median rental prices.
The REX HomeBuyer Agreement is not a loan, meaning there are no interest or monthly payments to FirstREX and thus no impact on DTI ratios. In exchange for sharing the down payment, FirstREX will receive a return on its investment equal to a portion of the change in value of the home, up or down, when the owner decides to sell in the future. If the value of the home increases, both the owner and FirstREX will make money on the investment. If the value of the home decreases, FirstREX will typically lose money on its investment, reducing the owner’s overall loss. Regardless of the scenario when one does decide to sell, FirstREX makes home ownership a possibility today.
These charts illustrate the impact the REX HomeBuyer Agreement has on monthly housing costs in five U.S. cities according to September 2015 median housing prices reported by Trulia.com. The first column represents median rent. The middle column demonstrates monthly housing costs on a 90/10 mortgage inclusive of a monthly mortgage insurance premium of 0.74 percent of the initial loan amount, and the third column demonstrates monthly housing costs on a 80/10/ REX HomeBuyer Agreement with no mortgage insurance required. Both housing costs assume 30-year, fully-amortizing loans with an interest rate of 4 percent, inclusive of principal, interest, taxes and insurance (PITI). Property taxes are calculated as 1.25 percent of initial property value annually, with property insurance calculated as 0.3 percent of initial loan amount annually. The third column indicates the dramatic effect the 80/10/ REX HomeBuyer Agreement can have by decreasing monthly housing costs to a level that’s lower than the median rent. These figures are based on monthly housing costs only, and do not factor in housing appreciation and other components many comparative calculators take into consideration, such as Trulia.com’s Rent vs. Buy calculator.