To Buy or To Rent, That IS the Question
The NYTimes recently published a story, “Rent or Buy? The Math is Changing.” This is a very enlightening view nationally with NY and CA housing prices. They point out in NY, San Francisco and Los Angeles, buying a homes is a perilous investment. They note “a lot of these coastal markets are overvalued compared to rents.”
However you look at it, DFW is a long way from a coast and a long way from being called an “overvalued” market. With interest rates down to 4% to 4.5% on a 30 year mortgage and rents soaring in a low inventory market with an exploding population influx, buying is still a great route in DFW if you can find your dream home. Price values are up in the urban area with the high price of land but the suburban cities are booming with reasonable home values.
Price values for homes are still great compared with most of the United States home pricing and is one of the key elements in attracting more and more business to more to Texas.
Buying a home still requires a good credit FICO score and that score can determine your interest rate as well as your income to debt ratio. Even with a “higher” interest rate, rates are at historic lows and the time to buy is now if you can. Out of pocket cash for a down payment can be as low as 3.5% for FHA loan, 5% for a conventional loan or even very little for a USDA loan in rural areas or a VA loan.
Renting a home in this market often still requires a decent credit score, albeit lower than a home purchase, and income is usually expected to be at least 3X the rent. Complications in renting start with pets as many homes do not allow pets while others screen for size and type of pet. Basics like criminal history and eviction history are all a part of the usual application examination. Deposits are almost always the first month’s rent value plus additional amounts for pet deposits and fees.
Investors have come into the market heavily since 2008 and converted townhomes and single family homes into rental property. A good rule of thumb in this market is that “rent” that will be charged on a home is about .9% of the fair market value (FMV) /month. Adjusting for location, age and condition, a good example would be that a $200,000 FMV home would rent in a range with $1,800 in the center . These rent rates compress on the lower FMV. For example, a $150,000 FMV would be in a rent range with $1,350 / month nearer the bottom of the range with $1,400 – $1,500 the “norm” depending on age, location, and condition.