Many people share the financial goal of owning a house. It’s an indication that you’re financially stable and are ready to lay down your roots. To buy a home, you need to save up enough money for your first deposit. After that, however, things don’t immediately get any easier.
People that don’t own a house often live in a rental property. That’s where the rent trap concept comes into play. The rent trap is a phenomenon that states that the average person living on rent won’t have enough money to save for their own home. So, as a result, a majority of their income will go towards rent, and not towards being a first-time home buyer.
Add on top of that the additional costs of living and different bills, and it becomes difficult to make any sort of savings plan. With rent prices consistently increasing, it becomes even more challenging for people to get out of the trap.
Are you renting and want to get out of the trap? Ask the team at Signature Dream Homes, and we’ll help you do that with our signature solutions, and get you into your own home.
Owning A Home Is Cheaper
After a certain point, it’s cheaper to buy a house than to make a rental agreement. The more sustainable the housing market, the more attainable the ‘breakeven’ point.
Statistics indicate that in most common metropolitan areas, the cost of a 30-year fixed-rate mortgage with a 20% down payment is cheaper than the rental average by a significant margin.
Experts have also found that a homeowner’s monthly payment will be lower than the rental payment in around three years under the standard conditions. These calculations take into consideration the rising rental values and the tax benefits that come with homeownership.
Furthermore, with mortgage rates remaining as low as they have in recent history, homeowners will likely be able to find a mortgage that they can easily manage.
Long-Term Financial Benefits
Aside from just locking in the mortgage rate and getting a grip on the monthly payments, even more benefits come with owning a home. Those that live on rent don’t have access to these kinds of benefits.
One of the most common pieces of real estate wisdom is that when you’re renting a property, you’re paying a mortgage. It may as well be your own. Therefore, when you attempt to finance a home, you’ll be directly paying your mortgage, and investing in long-term equity.
However, when you rent a home, it means that you’ll be paying someone else’s mortgage. So they’ll continue to receive the money, and you won’t see any long-term financial benefits.
As a homeowner, you can retrace your own footsteps and rent it out to others who are saving to buy their first home.
Being a homeowner allows access to compounding financial freedom. Owning a home allows people to gain access to loans for business and education by using the house as collateral.
Being a homeowner also means that you can pass on the investment to your future generations, instilling a sense of stability (and home). Renters, on the other hand, have to pay a hefty price for their flexibility. In addition, there’s no assurance that they’ll be able to stay in a single place for more than a year.
Most suburban communities effectively zone out their lands for single-family homes. As a result, that means that only the wealthiest renters can afford to rent houses in suburban communities. Many renters will be left with no choice but to rent in less desirable areas.
Buying a Home Isn’t Difficult
One of the most significant factors contributing to people being stuck in the rent trap is their mentality. However, at certain times there may be real financial and personal hurdles that you might need to clear before you’re ready to own a home.
However, many people stuck in a rent trap also tend to overestimate how difficult it is to become a homeowner. Consequently, they end up making a mountain out of a molehill. However, with a proper financial plan, anyone can put away enough savings and find themselves with an opportunity to buy a home.
The rent trap is real, but it’s possible to get out of it with a little hard work. Start finding intelligent ways to save money and make investments to help raise that initial capital for your first home deposit. That’s the first step in getting out of the rental trap and on your way to purchasing your first home.
At Signature Dream Homes, we help everyday Australians escape the rent trap and become homeowners. Many of our clients are delighted when we show the signature solutions for deposits, and get them into their new homes. We can do that for you too. You can own your own home. Talk to us today!