Should I Buy or Should I Rent?

April 11, 2024

We have been told many times that it is important to buy a home, so you can get equity, and homeownership is the best way to build wealth. Those statements are both true. Homeownership has always been part of what we consider the American Dream. As most of us know, things have gone up in price so much from homeownership to buying eggs and milk at the grocery store. This is something very important for first-time homebuyers to think about. Homes have gone up in price as well as homeownership expenses like taxes, HOA fees, insurance, and utility bills, and they will likely only continue to go up.

As a REALTOR®, you would think that I would promote first-time homebuyers wanting to buy a home. I definitely do, but what I don’t want is for my first-time homebuyers to be house poor and not be able to afford the home they bought. Buying a home is not right for everyone. Below are a few things to consider.

Property taxes have gone up and will likely continue to go up. In many counties in the Denver metro area, annual property taxes increased for the year 2023 and went up a large percentage; in most cases, property taxes increased more than 30%, and some homes even jumped up more than 50%. My home, for example, went from an annual property tax that was in the $5000s to taxes that were in the low $7000s. When you purchase a home, make sure to allow for the property tax increase in your monthly payment.

HOA fees have gone up in the Denver metro area, astronomically. Offhand, without giving it much thought, I can think of six communities that have HOAs that have monthly assessments that have gone up at a high rate, in some cases a few hundred dollars a month. Some have fees that have gone up due to deferred maintenance, and other communities have property management companies that have increased the monthly assessment because their expenses, like insurance rates, have skyrocketed. One of our properties had an HOA that was paying $30,000 annually for insurance, and the insurance just renewed at $210,000. That increase will be passed on to the unit owners in the complex in the form of a monthly assessment increase or a special assessment. Also, I have a past client who had a monthly assessment that was only $185/month, and it is now over $400/month due to deferred maintenance. Whether the HOA increases are due to increases in insurance or due to deferred maintenance, we are finding they are not uncommon.
 

Some first-time homebuyers hear about affordable housing and think this may finally be the right route for them and that they can finally buy a home. They are even willing to accept buying this type of home that doesn’t gain equity like a typical non-affordable housing house. It all sounds doable, especially because it is called affordable housing, but after researching multiple affordable housing programs (which are all different), I am beginning to see that affordable housing isn’t so affordable. With affordable housing, there are income limits and also debt-to-income ratio limits. A potential buyer may actually be within the income limits, but then, their debt-to-income ratio is too high. Although these affordable housing programs may have down payment assistance programs, the program I recently looked into for a client was also asking for an amount for closing costs that I don’t believe most first-time homebuyers have sitting around in their back pockets. These strict guidelines make it so very few people will actually qualify for an affordable housing program. Often, those that do are nearly giving up their entire monthly income to make the monthly payment on their new “affordable” housing house, with the income limits almost guaranteeing this outcome.

If you are a first-time homebuyer, expect your taxes to go up, your insurance to go up, and if you’re in an HOA community, your monthly HOA amount to go up. Make sure you have extra money on a monthly basis to comfortably pay these increases. The tricky part is that some of these increases are not small amounts and can’t be predicted. Also, when you are buying in a community with an HOA, make sure to look at HOA minutes regarding whether or not there are any discussions of a special assessment coming. It is important to look at what is in the reserves, and if there is deferred maintenance that needs to be addressed, while under contract prior to your HOA Termination Deadline. Any HOA community can find themselves in a position where they do not have enough reserves to handle regular maintenance items, let alone major unexpected expenses, such as roof replacements or large increase in insurance premiums.

Yet another thing to keep in mind is the cost of general home maintenance. In some communities, if you buy a condo or townhome, you may not need to take care of your exterior and roof, but the water heater, furnace, appliances, etc. are still your responsibility. This of course can be costly. I also personally had an HOA tell us that although the roofs are covered under the HOA responsibility, if they must replace the roofs again due to hail, this will be at least partly the responsibility of each unit owner. The HOA doesn’t have enough in their reserves to replace all the roofs in the community. The HOA actually told unit owners to call their insurance provider and have their insurance adjusted to include the roof or special assessment in the event the community needed to replace roofs. To top it off, this is after a monthly HOA assessment increase and another to come had already been announced.

I would encourage you to talk with a TK Homes agent and discuss your options. We will put you in touch with one of our preferred lenders who will help you to figure out what your monthly payments will look like with the current interest rate. Together, we can look at how this compares to renting in the area you would like to live in. We will work together to find the best  decision for you. It is important to us that we educate our clients on the best financial decision for them. We want our clients to be happy in their new home and not financially stressed in their new home. Contact us today, so we can help you to figure out one of the most important decisions you will make in your lifetime.

~ Written by TK Homes REALTOR® Mary Smith