Why You Should Buy a Home During the Covid-19 Pandemic
6 critical reasons to buy now
How to take the next step and become a homeowner
The Covid-19 pandemic, and the CARES Act that was created to help the economy recover, are leading us to what I believe may be the best opportunity for renters to buy a home. Or, if you’re already a homeowner, it’s the best time to refinance.
Interest rates are now at a historic low, making homeownership more affordable, for both owners who are looking to refinance and for renters who want to buy their first home.
With this unique opportunity in mind, I created The First-Time Homebuyer Challenge. This is a brand new online course that is completely FREE and runs for five days. It includes video coaching from me that teaches you how to use this time of uncertainty to build financial security.
If you’ve followed me in the past, you know how strongly I feel about homeownership being a key escalator to building wealth. In fact, right now in America, homeowners are worth 46 times more than renters, according to The Federal Reserve’s most recent Survey of Consumer Finances. Are you ready to find out how to take advantage of low interest rates and get in the game of homeownership?
Great! Let’s take a look.
The renting vs. ownership path
“But David,” you may think, “Isn’t it cheaper to rent than buy?” The long-term answer is, “NO.” Homeownership is cheaper over time.
Let me explain.
Say you spend $1,500 a month on rent. Over 30 years (without any rent increases), you will spend $540,000 — and at the end of that time period, you don’t own anything. To live somewhere, you will have to keep paying rent every month. Oh, and by the way, those “extra costs,” such as taxes and maintenance, are baked into your rent, which lines your landlord’s pockets.
Trust me, your landlord isn’t paying for these expenses — you are.
On the other hand, if you took out a 30-year mortgage with the same $1,500 payment amount, you could buy a home at roughly $240,000 — and you’d eventually own it free and clear. Not only will you own your home after 30 years (and hopefully much sooner than that if you can pay your mortgage off quicker), but you won’t have to make any more mortgage payments.
The renting path leaves you with a recurring monthly expense, no asset, very little savings and reduced financial security. Your landlord profits because your rent payment goes toward buying their building!
The ownership path leaves YOU in control of a significant asset, more wealth, better financial security and no more rent payments!
As a homeowner, you’re in control, meaning you have options. You can even borrow against your home’s equity to buy another home and rent out your first property to build even more wealth. Owning presents way more options for your future self. Yes, you will need a down payment — and yes, that may take time to save up for — but you may also qualify for a low down payment option, too.
6 critical reasons to buy now
Owning a home isn’t for everyone, but if you’re still renting, have a stable job and aren’t planning on moving anytime soon, now may be the right time to consider homeownership. I haven’t seen buying conditions as favorable as the current market for a long time. Here’s why.
1. Historically low rates
Rates have never been as low as they are today. That means that you can take out a loan for an insanely low cost, which makes owning your home more affordable than ever. Not only does that save you money now, but with a fixed-rate mortgage, you can lock in that low rate for up to 30 years.
I recommend a fixed-rate mortgage, preferably a 15-year fixed mortgage, if you can afford it. This way, you can take advantage of even lower rates and be out of debt faster. If you choose a 30-year mortgage, you will pay a slightly higher rate, but have a smaller monthly payment. You can always make additional payments toward your principal balance to pay off your 30-year mortgage sooner. Most people go with a 30-year mortgage.
Taking advantage of today’s low rates can save you thousands by the time you pay off your loan. To get an idea of what mortgage options are available, click on your state above to see what rates are in your area.
2. Mortgage interest deduction
Right now, homeowners are allowed to “deduct” the mortgage interest from their taxable income. This deduction applies on the first $750,000 of the home loan.
Let’s say your $1,500 monthly mortgage payment includes $750 per month of interest charges. You can deduct a total of $9,000 in taxable income on your tax return, so your effective payment is even less than $1,500. When you rent, you still pay the entire $1,500.
You get zero deductions for rent.
3. It’s a buyer’s market
I’m seeing the pandemic put a temporary slowdown on the market. In some markets, prices are dropping.
There are also fewer buyers to contend with. Your odds of buying a home at a great price, without dealing with the hectic home-buying process, are a lot better than a year ago. In a hot real estate market where there are lots of buyers, home prices rise fast and you might face some stiff competition, forcing you to make knee-jerk decisions that you aren’t comfortable with.
I’m telling you — now may be your time to buy.
4. Additional financial protections
We’re dealing with an unprecedented situation with Covid-19. It’s an unfortunate situation that I’ve been watching from the very start here in Italy, where I live. But here’s the thing: Under the CARES Act, if you have a federally backed mortgage, you’re much safer financially.
If you run into problems, you can put your mortgage into forbearance (meaning, you can temporarily pause paying your mortgage or make a lower monthly payment) for up to three months at a time. Imagine whether your landlord would let you off the hook for three months of rent.
Maybe they will — but what if they won’t? The truth is, you have zero control as a renter if you can’t make your rent payment long term. Shockingly, as an owner, you have more rights.
5. Home improvements can increase property values
Do you think your landlord would be OK with you making big changes to your apartment? What if your child becomes disabled and needs wheelchair-friendly modifications? Or what if you wanted to add a beautiful garden, or build a new shop to get into woodworking? Good luck with doing that in an apartment. As a homeowner, you have control over the aesthetic and functionality of your home.
Another reason why this factor is key: Making changes to your home lets you upgrade its value.
You can renovate a kitchen or a bathroom, add on a new room or build a second floor. You can put in attractive landscaping that fits your personal taste. In other words, you can literally BUILD your own wealth without having to build a new home from the ground up.
Modifying the value of your home like this can really make your wealth skyrocket. Just ask all of those people who buy fixer-uppers and sell them at higher prices, especially in areas where home values are appreciating. By upgrading your home, you get a nicer house while building wealth at the same time!
6. You can make a fortune tax-free
This last one is why homeownership is truly the escalator to building wealth. As a homeowner, you can sell your home and make up to $250,000 tax-free for single filers and up to $500,000 tax-free if you’re married.
You can’t do this in the stock market. You can’t legally avoid taxes on any normal investment gain the way you can on a home purchase. Plus, you can add any home improvement costs to the basis of the property so your gains are calculated above what you invested in the property.
I have made millions over my lifetime tax-free by simply living in my primary residence, having its value go up, and then selling it.
Then, I do it again.
And I’m not alone. Many people have done exactly what I have done. Many have been able to retire just off the gain of their home’s value.
How to take the next step and become a homeowner
If you’re convinced that now may be the right time for homeownership for you, the next step is figuring out how much house you can afford and starting the mortgage lending process. You can start the process today at any of the reputable mortgage companies that I recommend to all of my readers below.
And remember — if you already own a home, NOW IS THE TIME TO REFINANCE.
I put that in caps so you can’t miss it. You want to act on this today.
Still on the fence? Learn more with me: I partnered with Money.com to create The First-Time Homebuyer Challenge, which is a free, five-day email course designed to help you learn the five critical steps of the home-buying process.
If you’re still renting, it doesn’t hurt to complete the challenge and be better prepared to buy when the time is right for you. Your first home may be closer than you think!