Why Soaring Apartment Rates Help Home Buyers
Mortgage Banker
Richard Blair
Published on September 28, 2021
Portrait of couple have bought of dream home with their first mortgage loan

Why Soaring Apartment Rates Help Home Buyers

Is the lease for the home or apartment you are renting coming up for renewal in the next 2 to 6 months?

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If the answer is YES- be prepared for a potential whopping increase in your monthly rent. Many home renters are experiencing rent increases from $200 to $600 a month.

The average monthly rent in Phoenix is about $1341.00  a month.

Why are rents skyrocketing in the Phoenix market?

Arizona is continuing to grow at a very rapid pace. The more people that move to Arizona the bigger the demand for places to live. There are more people looking for apartments and homes to live in then the supply of vacant rentals. So, rents continue to increase month over  month.

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In fact, according to RealPage.com , Phoenix has the biggest annual change in the effective asking rent by landlords in the country.   Asking rents are up roughly 24%.  If your rent is $1500 a month currently, the anticipated rent increase on renewal is almost $400 additional dollars each month.

This is the article from RealPage that goes into more depth on national rental trends. https://www.realpage.com/analytics/u-s-apartment-market-performance-continues-surge-august/

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Phoenix is  #1 in the nation for Monthly Rent Growth…Here are Five major Reasons

This is the first time in more than 10 years that rent growth in Phoenix has climbed into the double digits.

Are you wondering why the sudden increase in rent prices and why there is so much competition for a rental home?

  1. Strong Population Growth – Arizona topped the list of states that added the most residents in the past year. A large percentage are people from California relocating to Arizona.
  2. Increase in Job Growth and wages for those jobs.
  3. Very low vacancy rates for apartment complexes
  4. Slowdown in new apartment developments and new homes supply
  5. Arizona has no rent control law

A high demand for rental homes together with a low supply of available rental units means rent prices are likely to continue.

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Can a First Time Home Buyer Now find an Option for a Mortgage Payment Close to Rent? 

With rents surging to new highs doesn’t it make sense to consider paying a mortgage for a home you own, not your landlord’s mortgage?

The biggest obstacle to home buying is typically saving for a down payment. Today with very low interest rates for home mortgages together with many low down payment options it is a great time to buy. Call your local mortgage broker or mortgage banker to discuss possible down payment options.

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Are you a veteran?  

The VA home loan offers a zero down payment, very competitive interest rate, and no monthly mortgage insurance. Check local reviews for a mortgage loan originator that is familiar with VA Home Mortgages.

Did you know that the US Department of Agriculture offers mortgage loans?

If you thought that the USDA was just inspecting meat then you will be surprised.  USDA loans are mortgages backed the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. A USDA loan is a zero down payment program.  

Here are several requirements for USDA mortgages:

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  • No Down Payment
  • The home must be in a qualified “rural” area to be eligible.
  • The home buyer must meet USDA monthly income caps.
  • The home you are buying must be your primary residence. Investment property or second home is not permitted.
  • There are specific “ability to repay” standards that include your income eligibility, credit score minimum, and your existing debt-to-income ratio.
  • Upfront fee is added to your loan balance and monthly Mortgage Insurance is required. Mortgage Insurance rates are typically lower than FHA or Conventional.

The USDA mortgage program can be a great option for a First Time Home Buyer where the property and the home buyer meet eligibility requirements.

Call a local Mortgage Broker or Mortgage banker that has experience in USDA mortgages to find out if this mortgage is an option.

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What is an FHA Mortgage?

An FHA loan is a mortgage insured by the Federal Housing Administration. The mortgage lender sets the interest rate for the program, so reach out to a local loan originator for more information about the FHA loan as an option for you.

Here are some highlights of a FHA mortgage:

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  • Low Down Payment of 3.5% of the purchase price.
  • More lenient credit score requirements and guidelines than a conventional loan.
  • Shorter timeline after a negative credit event than conventional mortgage. Requires only two years after bankruptcy discharge and 4 years after foreclosure.
  •  Lower mortgage insurance rates than conventional for some home buyers.
  • You must live in the home as your primary residence.
  • The Down Payment can be from Gift Funds. For more information about the use of Gift funds for down payment check out the following article Can You Use Gift Money For A Home Purchase  https://richardblairmortgageteam.com/using-gift-money-home-purchase/
    The FHA mortgage offers many benefits for the First Time Home Buyer.

Phoenix Arizona Prequalify for a mortgage

 

FHA has loan limits based on the State and County where the home is located. Check with your mortgage loan officer to find out what the maximum FHA mortgage loan amount is for the community you want to buy.

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Thinking about buying a condo rather than a house? Check with your mortgage lender first because many condominium projects are not approved for FHA mortgage financing.

A negative of the FHA mortgage is that your private mortgage insurance payment cannot be cancelled even if you the value of your home increases. It is on for the life of your loan.

Many times you may buy with a FHA mortgage and refinance to a conventional mortgage at a later date to avoid a monthly mortgage insurance payment.

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Conventional loans are considered a “standard” mortgage or Agency loan.

Conventional loans are the most popular mortgage for home buying and refinancing.

Here are the highlights of conventional loans:

  • Down Payment as low as 3% of the purchase price. This is even less than FHA minimum down payment. There are income limit restrictions to eligibility for this program.
  • If you have 20% down payment there is no mortgage insurance.
  • If your loan does have mortgage insurance you can apply to have it cancelled when your equity reaches certain point. By law, the mortgage insurance will cancel automatically when you reach a certain percentage of the principal balance.
  • Mortgage insurance rates vary based on credit score and amount of down payment.
  • Can be used for your primary residence, second home or an investment property.
  • You can finance eligible manufactured homes.
  • Minimum credit score of 620 is required.
  • Eligible Gift Money can be used for down payment
  • Nationwide conventional loan limit for a single family home start at $548,250 and may be higher in certain areas.

The conventional loan is very popular although it can be more difficult to qualify. The conventional mortgage guidelines can be complicated so speak with a mortgage banker or broker that will evaluate your financial situation and offer lending options.

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Buying  a home with Down Payment Assistance

Down Payment Assistance (called “DPA”) program will vary by State and County.  DPA eligibility guidelines vary by program so check with a knowledgeable local mortgage lender for more information. Not every mortgage lender offers DPA programs.

The Home Plus down payment assistance program can cover both your down payment and/or your closing costs and is calculated based on the amount of your loan.

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Here are some general highlights for the Arizona Home Plus Program Down Payment Assistance Program:

  • The amount of payment assistance is capped.
  • There are income restrictions for eligibility.
  • Owner occupied, primary residence only.
  • Debt to income guidelines for qualifying are generally stricter.
  • You must complete a pre-purchase homebuyer education course.
  • The DPA program generally has additional fees that can range from $700 to $1,000.
  • The amount of assistance can range from 1% to 5% of the loan amount and can be used towards closings , pre paid expenses and down payment.
  • DPA is typically offered for conventional, FHA, VA and USDA
  • There is a minimum credit score to qualify. This credit score is typically set at 640.

The DPA programs vary widely so check with a mortgage lender that is authorized to offer a DPA loan in your state and county. The DPA loan can be a way to buy a home now without waiting to save for a down payment.

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The interest rate is typically higher than programs where there is not a DPA.

In many programs the DPA is given as a second mortgage that has no interest and no payment.  The amount of the assistance is forgiven monthly over the first three years of home ownership. There are penalties if you sell or refinance your DPA loan before 3 years.

Many of the loan programs discussed have a fixed interest rate over the life of the loan. The major part of your monthly payment is Principal and Interest.  The part of your monthly payment that can change is your home insurance or real estate taxes. This makes budgeting and saving for future more predictable.

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Rent on the other hand is controlled by the landlord and is more likely than not to increase year over year. Rents have skyrocketed in most major cities through the U.S., including Arizona. Each year your renewal can be increased which makes it more difficult to plan and budget for the future.

Whether you rent or own a home you will be paying a mortgage. If you own, each mortgage payment is building equity by lowering your principal balance owed. If you rent, you have no control over the monthly rent and you are paying the landlord’s mortgage.

 

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