My friend Martha, 53, recently bought a 2,000-square-foot farmhouse that's over 100 years old and nestled on five acres about 30 miles from Washington, D.C. She had to jump through lots of hoops to land a mortgage, but when I talked to her about the purchase she was walking on air.
Although I’m delighted for Martha (and maybe a little jealous — there’s a barn and pasture space to have a horse or two on the property), I worried that the house might become a financial nightmare given that she’s single and self-employed.
As it turns out, Martha is part of a trend. Single women have been buying homes like almost never before.
A recent Wall Street Journal essay
entitled "For Women, Is Home Really So Sweet?" identifies the trend: “In 1981, six years after the Equal Credit Opportunity Act made it illegal for lenders to discriminate according to sex or marital status, single women represented 11 percent of all homebuyers. That figure reached a peak of 22 percent in 2006, although it has dropped a few percentage points since then, due to the economy. Meanwhile, single male homebuyers have held steady around 10 percent.”
For a couple, buying a house or condo requires a big leap of faith. But it can be even more intimidating to think about buying a place — and covering its ongoing costs — solo. Personally, if I were single, I don’t think I’d want the financial responsibility, the maintenance headaches and the loss of mobility that come with homeownership.
That said, most Americans — 70 percent — think it’s a good time to buy a house, up from 53 percent who felt that way in 2008, in the depths of the real estate crash, according to last week’s Gallup Poll
If you’re a single woman, here are five reasons why you might want to consider buying a home:
1. Prices and mortgage rates are in bargain territory. Buying a house or condo lets you take advantage of the drop in real estate prices and today’s near-record-low mortgage rates, provided you can meet lenders’ tough down payment and underwriting standards.
The median sales price of U.S. homes is now $163,800, down from $182,100 in July 2010, according to the National Association of Realtors. And the Zillow Home Value Forecast
calls for a 3.7 percent home value decline from December 2011 to December 2012. Meanwhile, the average rate on a 30-year fixed mortgage is currently about 4.2 percent; it’s 3.1 percent for an adjustable loan.
2. Rents are on the rise. They're up 2 percent nationally over the past year, says Zillow. And in some cities rents have soared — climbing nearly 9 percent in Chicago and 15 percent in Philadelphia during the same period.
In fact, it’s now more affordable to buy a home than it is to rent in 98 of 100 U.S. metro areas, according to real estate data search engine Trulia
. (The exceptions: Honolulu and San Francisco.)
3. Real estate has some potential advantages as an investment. A home purchase in an enviable neighborhood can be less volatile than the stock market and offer a better potential return than bonds, since interest rates are likely to rise (which means bond prices will fall). You also stand to build equity over the long-term, which could increase your net worth.
4. The mortgage interest and property taxes can lower your federal income taxes. The value of their deductions will depend on your tax bracket, but they can be pretty significant if you make a good living.
5. Homeownership is empowering. This is especially true for a woman who has just gone through a divorce or been widowed and wants to get a foothold on a new chapter in her life. Owning a home can boost your self-esteem and give you a feeling of independence. The emotional and psychological element of homeownership is hard to put a price on, but it can’t be ignored.
Still, whether buying a home is better than renting depends on many factors. So how should a single woman decide whether to buy or to rent?
I recommend asking yourself these three questions:
1. How long do I plan to live in my next home? Renting is often a better choice if you expect to live in a place for less than three to five years. If you bought a home instead and had to sell it that quickly, you'd be unlikely to recoup your closing costs and your down payment. If you think there’s a good chance that you’ll want to move within three to five years, think twice before buying.
2. Do I have the savings for a hefty down payment?
The average down payment is now about 27 percent, according to the Mortgage Bankers Association of America.
The more cash you can put on the table, the lower your closing costs will be, since those costs are calculated as a percentage of the mortgage amount. Putting more money down can also get you a lower mortgage rate and reduce your monthly payments.
If you can’t make a down payment of at least 20 percent of the purchase price, you’ll usually be required to pay private mortgage insurance each month. You’d owe about $50 to $100 monthly for private mortgage insurance on a home costing roughly $200,000, says the Mortgage Insurance Companies of America.
3. Which would cost me less?
Principal and interest on a mortgage are just the start. The annual property taxes on a home can be quite steep, especially in pricey parts of the country. For example, they run close to seven grand on my friend’s new farmhouse.
Then there's the cost of homeowner’s insurance and home maintenance and repairs. To get a sense of what a home's property taxes might amount to, ask what the seller was paying; for an insurance estimate, get a quote from a local agent.
As a rule, you should spend no more than 30 percent of your before-tax income on a home each month. For a house or condo, that means adding up the mortgage payment, pro-rated property taxes and homeowner’s insurance premiums (and any premiums for mortgage insurance) plus any dues for a homeowner’s or condo association.
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