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First-time buyer guide - long-term wealth building

The Long Game: Buying Your First Home When Rates Are High

With HomeReady or Home Possible and today's rates, owning a home usually costs more each month than renting the same home. That part is real, and we will not pretend otherwise. What the monthly comparison leaves out is everything that happens next: rent keeps rising, your principal and interest do not, mortgage insurance comes off, and every payment buys back a piece of an asset that is growing. That is long-term wealth building, and it starts the day you close.

1Year one, honestly

A home bought with HomeReady or Home Possible and strong credit, compared with renting that same home for a month.

more per month to own than to rent, in year one
what owning costs for every $100 of rent
of the owning cost that pays down your own loan
equity after year one, counting your down payment and appreciation
The owning side here counts everything: the mortgage, mortgage insurance, property tax, homeowner's insurance, and an upkeep set-aside of of the home's value every year. Renting counts rent plus renter's insurance.

2"Why not rent, save a big down payment, and buy later?"

It sounds prudent. The problem is that the target moves while you save. Saving a month on top of already banked and earning in savings, toward the traditional large down payment that avoids mortgage insurance, with prices rising a year:

to save it, plus closing costs
what the same home costs by then
rent paid while saving
equity the day-one buyer holds by then
And after all that saving, principal and interest on the bigger price comes to what the day-one buyer started paying. Waiting did not buy a lower payment. It bought a later start.

3Four things change after you buy

Rent keeps climbingIn this example rent rises a year at each renewal. By year 10 the same home rents for .
Your payment is fixedWith a fixed-rate loan, principal and interest never change. Only tax, insurance and upkeep creep up.
Mortgage insurance endsOnce you reach enough equity, you can ask to remove it. In this example that happens around year , and the monthly cost drops again.
If rates fall, you can refinanceNobody can promise it, and this guide does not count on it. If rates did fall by month , principal and interest could drop by roughly , with closing costs added to the balance and the payoff clock restarting.
Rent for the same home Owning, original loan Owning, if refinanced (a what-if) Year-one rent = 100

4Long-term wealth building: where the money ends up

This is the fair test. The renter does not spend the cash it would have taken to buy, and invests it at a year. Every month owning costs more, the renter invests the difference too; once owning costs less, the owner invests it instead. The owner's side is counted after in costs to sell.

Owner: home equity after selling costs, plus savings Renter: every dollar not spent on the house, invested

Even without a refinance, the owner pulls ahead around year , and after that the lead grows every year. By year 15 it is .

What this example assumes, and what it does not

  • Home values rise a year and rent . Neither is guaranteed; values can fall, and in a bad stretch they have.
  • The renter's savings are assumed to earn a year. Home value growth, rent growth and that return decide the result: at appreciation the owner pulls ahead around instead of , and a renter who earns on every dollar saved, every month, . In this example owning wins on time and discipline; with slower appreciation or a better-invested renter it does not.
  • Upkeep is counted at of the home's value every year, so owning is not flattered by leaving out repairs. Each year's monthly cost uses that year's average upkeep, which rises as the home's value does.
  • The table and the "pulls ahead" year use the original loan with no refinance. The refinance is shown only as a what-if.
  • Mortgage insurance removal on a new appraisal needs a good payment history and the value to hold up. You pay for the appraisal and the servicer has to agree; otherwise it ends automatically later.
  • No tax deduction is counted. Most first-time buyers take the standard deduction; ask a tax advisor about yours.
  • No income tax is counted on either side. The renter's investment gains would be taxed; most of the owner's gain would not be (ask a tax advisor).
  • Buying and selling have real costs, and in this example the owner does not pass the renter until year , so owning works best if you plan to stay a long time.

5Is HomeReady or Home Possible a fit?

  • Conventional programs with a reduced mortgage insurance coverage requirement
  • Gifts from family can cover the down payment
  • Mortgage insurance priced below standard conventional loans at the same down payment
  • Income limits apply, generally 80% of the area median
  • A short homebuyer education course is required for first-time buyers
  • We can tell you in one conversation whether you qualify
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Equal Housing Opportunity. {{lo.company}}, NMLS #{{lo.nmls}} (Company NMLS #{{compliance.companyNmls}}). This material is educational only and is not a commitment to lend, an offer of credit, or a fee quote; all loans are subject to credit approval, program eligibility including income limits, and underwriting. The example is a hypothetical illustration using the assumptions shown, not a projection for any individual. Home values, rents, rates and costs can differ materially from the example; appreciation is not guaranteed and a future refinance depends on rates, property value and credit at that time. Consult a qualified tax advisor about tax matters. This co-marketed material is shared by each party at its fair-market-value cost consistent with RESPA Section 8; no party pays for referrals and none are required.