Why people are renting when mortgage payment is much below rent?

Question

Hi, I am paying rent of 1500$ per month in california. And i can get a decent 1 bed room condo for 170,000$ in a average school district. If i put 20k as down payment and take 150k mortgage my monthly payment is only around 900$. HOA is 200$ and property tax is 200$/ month. And i will get tax returns for my mortgage loan. Even if i add all of these my monthly total will be 1150$ or so. So i will save 350$/ month right?

Why people are still renting? I want disadvantages of buying a condo?

Answer 1

There is also closing costs (with over inflated fees), and required homeowners insurance which will add to your mortgage.

There is also the risk that the property value can go down. A 30 year mortgage is a big commitment (not able to move or resale over the next 5-10 years could be less than you paid for it).

If you plan on staying put, maybe this might work out for you. It also depends on the location of the property, and the market in that area.

HOA's in my experience with them, are often ran by anal retentive people with no business finance backgrounds. Their fees can go up, they never go down, and they love spending other peoples money of their pet projects, and consequently underestimate costs.

There is also water costs, or other utilities that renters may not have to pay where an owner does. It may not be a huge amount, but it adds up.

Renters are not obligated for any repairs either. Many people now can't qualify for lunch, as banks have tighten credit since their heyday of easy lending.

Hope it works for ya.

Answer 2

-They can’t qualify for a loan.

-They lack the time or desire for upkeep, yard work, and household repairs/maintenance. Or they just don’t want the responsibility.

-They will be moving in less than five years and don’t want to owe money when they sell.

-They can’t afford the increased utilities that come with ownership. Even if it’s the same sized space so that heating & electric are the same, renters often don’t pay for water, sewer and trash.

BTW, your payment doesn’t take into account property insurance.

HOAs are sticky. If you want to move forward with this, have your buyer’s agent make your offer contingent on your reviewing their by-laws. They can restrict/control some crazy stuff.

Answer 3

Because they don't have $20k to put down?

Answer 4

The primary reason that people in your situation continue to rent rather than purchase is that their monthly expenses do not permit them to save the down payment.

Btw, if you can afford it, put down 20% ($34k) on that condo so you don't have to shell out monthly for private mortgage insurance (PMI).

The biggest current disadvantage to buying a condo, or any property, is that property values may continue to fall. On the other hand, the market will recover, and your equity will grow over time.

Answer 5

Renting you are not responsible for things, if your dishwasher or washing machine, dryer breaks you aren't responsible to pay for it to get fixed or replaced. And if you can't afford a down payment on a house or condo renting is easier. Some places that you rent you don't have to pay for water, heat, ect.

Answer 6

they do not qualify for  amortgage--- the only disadvantage is no grills excep on common ground

Answer 7

Disadvantages:

1. You lose the income from investing your 20k.

You could be getting interest of over 5% APY on that money totaling approximately $1,000 a year.

2.  You may have to settle living somewhere you don't want to.

You don't say what type of apartment or house you are currently renting, but it might be bigger than the 1 bed room condo.  It also may be difficult to sell the condo in a bad market (or if the area becomes less desirable due to the average schools getting worse than average), leaving you stuck in the area.

3.  You may end up losing money when you sell.

If you need to sell before your condo has increased in value or you have paid a good portion of your mortgage, you will have to sell at a loss.  When you take out that condo mortgage, you also pay closing costs and other fees, these add up and cut into your equity. The typical period for which it makes sense to own instead of renting is longer than 5 years.

4.  You will own a 1 bed room condo.

I'm happy in my current situation renting a two bedroom apartment for about $1070 a month.  I could buy a similar condo for a little more money, but that's not where I want to be for the next 5 years.  I may move to another area in less than a year, or I may look for something larger with a yard because of kids.

5.  Your mortgage could cost you more than you think.

Check out the link below for mortgage rates for your area.  I randomly picked Fresno, California and started seeing 30-year fixed rates at 6.5%.  It appears you used 6% in your calculations above.