The tragic reality of the American Dream is that many Americans are not living it. Many in our nation live paycheck to paycheck and doing everything they can to make ends meet. One of the cornerstones of the American Dream is having a home to call your own and a place to raise a family. Unfortunately, many are not living in this reality. Instead, they are feeling a financial squeeze as the cost of living increases while wages remain stagnant. One of the biggest contributors to this financial squeeze is the cost of rent. Rent is increasing dramatically in many markets in the United States. This is especially true for households with lower incomes. Basically, we are witnessing an affordable housing crisis in our nation. Fortunately, there is a solution to this crisis that does not require political action. The solution is simple: buy a house. 

America’s Affordable Housing Crisis

The numbers are clear and the problem is real. There is a severe lack of affordable housing in the United States. Our nation is short between 7 million and 12 million units of affordable housing to meet the needs of low income and middle income Americans. In 2017, only 35 out of 100 low income Americans were able to find affordable housing. The numbers have grown even worse in recent years. These numbers also do not account for the many homeless who are not able to afford housing. Some might think this is market dependent, but it is not. There is not a single state in the nation where someone working full time at minimum wage can afford a two-bedroom apartment. 

The lack of affordable housing means that many households are trying to find creative ways of paying for housing. According to a 2015 study by PEW Charitable Trusts, 40% of renters in America are rent-burdened. Rent-burdened means that a household is spending over 30% of their income on rent. This study also found that 20% of renters are severely rent-burdened. Tragically, these numbers have only worsened in recent years, especially by the pandemic. Today, nearly 25% of all renters spend over half their income on rent alone. The pandemic has resulted in countless renters falling behind on their payments. Ultimately, people who are already stretching their budgets to pay rent are now having to catch up on payments. This is unsustainable. 

Those who spend a high portion of their income on rent are forced to make difficult choices. This means that many Americans forgo things like health insurance or other necessities in order to make sure rent is paid. Additionally, many choose to live far away from where they work to find more affordable housing. This places an extreme time burden on them as they have to spend large portions of time commuting to and from work. It also adds an extra expense because they have to pay for transportation to and from work. This also leaves many families without a financial safety net. Any kind of emergency can wreak havoc on their budget and make their situation far worse. 

To make matters worse, rent is not a fixed amount. Rent has been increasing dramatically over the years. Many markets also do not have rent control, which means that these increases are unpredictable. For families who are barely getting by on their current payments, any increase is too much of a burden. This forces households to pick up even more extra work or make other sacrifices. 

Buying a Home is a Solution to the Affordable Housing Crisis

The problem is clear, which is why many markets are trying to do something at the political level to resolve it. However, Americans who are stressed by the financial crunch they experience each week cannot wait for politicians to find solutions. Thankfully, there is something that you can do to get out of this difficult financial cycle: buy a house. 

It seems completely counterintuitive that buying a house is a way of resolving the affordable housing crisis. After all, how can anyone who is struggling to make rent payments afford to buy a home? Doesn’t it take a large amount of wealth to buy a house? How can anyone afford to buy a home when they cannot even afford to save? 

While it might seem counterintuitive, the data is conclusive that buying a house is a way to escape the affordable housing trap. According to the Urban Institute the simplest way to resolve the problem of affordable housing is homeownership. According to Mike Loftin, an analyst with the Urban Institute, owning a home is simply more affordable than renting. 

The numbers provided by the Urban Institute report are staggering. Every year, over $39 billion is paid to landlords. Over a lifetime, homeowners spend 16% of their income on housing compared to 26% for renters. The 10% difference is huge and gives insight as to how and why homeowners have more wealth than renters. This 10% can be used for savings or investments instead of lining landlords’ pockets. 

The long term trends for renting versus home ownership are something important to keep in mind. As time goes on, rent increases. On the other hand, as time goes on, mortgage payments stay the same as long as you have a fixed-rate mortgage. This makes budgeting easier. 

Monthly payments are not the only long term data point to consider. Equity is another big factor. The problem with rent is that it is used to pay someone else. You never profit from rent. Your landlord profits from rent. For mortgage payments, it is the opposite. As you pay your monthly payments, you start to pay down the principal you owe on your home loan. As you pay off the principal on your mortgage, you start to owe less on your home than its value. The difference between the value of your home and the amount you owe on your home loan is equity. Equity is an asset and you build it as you make your regular payments. 

There are other financial benefits to owning a home versus renting a home. Owning a home also gives you an opportunity to reduce your tax burden. Each year a portion of the interest you owe on your mortgage can be used as a tax write off. The money you save on taxes can be used for savings, investments, or even luxuries that make life enjoyable. Renters do not get these same benefits. 

The benefits of owning a home compared to renting are clear. However, this only matters if owning a home is available to low income and middle income households. The good news is that owning a home is available to everyone. You do not need wealth to buy a house. You just need a plan and an experienced team of professionals who can guide you. There are typically two big hurdles that most households face when it comes to buying a home: credit score and down payments. Neither of these impediments are terminal. At Peoples Choice Mortgage we work with all of our clients to pursue credit enhancement strategies that get them to where they need to be to buy a house. Same is true for down payments. There are many loan products and government programs that help you buy a house with less than a 20% down payment. 

Final Thoughts

Everyone can buy a home. It might not be today, but with the right plan, it can happen in the future. The difference between owning a home and renting for the rest of your life comes down to desire and a plan. If you truly desire to buy a house, then you can! The desire and belief that you deserve to be a homeowner is the biggest obstacle. Once you believe that you deserve to be a homeowner, all you need is the plan. The plan is the easy part. Thankfully, you do not have to place the burden on making a plan on your shoulders because that is what your team is for. 

At Peoples Choice Mortgage, we work hard to meet our clients where they are financially. Many of clients are not ready to buy a house when they walk in the door. Their current financial situation prevents them from qualifying for a mortgage. However, through credit enhancement, budgeting, and knowledge of loan products and programs, we help our clients get ready. Everyone deserves affordable housing. Everyone deserves to own a house. Our mission is to make sure that we help everyone who desires that for themselves. If you have the desire to buy a house and want to start your path today, contact us! Our team of experienced mortgage professionals will help make your dream a reality.