Here's why renters in America feel trapped

By Mandi Woodruff 11 hours ago Yahoo Finance

In a recent report by the FINRA Investor Education Foundation, researchers offer a sobering peek into the homes of renters. Nearly one-quarter of renters in a survey of 25,509 renters and homeowners combined say meeting their monthly financial commitments is “very difficult,” and more than half say they wouldn’t be able to come up with $2,000 to cover an emergency expense.

Homeowners, by comparison, feel much more stable. Half as many homeowners as renters say they find meeting their monthly bills “very difficult” and nearly half say they have no trouble meeting their monthly expenses, according to the report.

Source: FINRA

Because the cost of renting and buying varies so widely across the U.S., you have to take reports like these with a healthy dose of salt. In some metro areas, like San Antonio and Phoenix, it’s actually much cheaper to buy a home than rent.

But the reality is that the cost of renting across the country is on the rise, straining the budgets of many renters. In the largest 25 metro areas in the U.S., rents increased by 5.5% in 2013, eating up more than 40% of the average renter’s household income, according to Trulia. Most financial experts recommend spending less than one-third of income on housing.

“Once [rent] is over 30%, that’s when you start getting into the danger zone financially,” says Helen Stephens, a certified financial planner in Dallas. “And the problem when you’re renting is that you may be in a lease for a year, and at the end of that year your landlord has the right to raise the rent on you.”

Source: Finra

In addition to rising rents, coming up with the cash for day-to-day expenses, let alone a down payment, can be tough for renters. Renters are more likely to be saddled with debt of all kinds than homeowners, according to FINRA. More the half of renters carry credit card debt vs. 47% of homeowners. And renters are nearly twice as likely to have medical debt than homeowners, owing to the fact that fewer renters have health insurance.

Not all renters are 20-somethings eating Cup Noodles and struggling to pay off student debt, either. The average age of renters today is 41, per FINRA, and nearly half of renters say they have dependents at home.

The road from rent to mortgage

For renters who aspire to own a home one day, the biggest hurdle they’ll face is mastering cash flow — ensuring that the money coming in can not only cover their bills, but also leave them with wiggle room to save. Unfortunately, today’s renters have a lot less capital to work with than existing homeowners. According to FINRA, 74% of renters earn less than $50,000 a year, vs. 60% of homeowners who earn more than $50,000.

Another challenge facing prospective home buyers: the daunting down payment -- typically 20% of the home’s purchase price. And Stephens advises her clients to build up an emergency maintenance fund of at least a few thousand dollars in case any unexpected repairs are needed once they’ve moved in.

As for the best place to save for a down payment, Stephens recommends a regular bank account. Banks are offering paltry interest rates on savings now, but it’s a wiser option than investing it in the stock market, she says.

“I don’t believe in investing money in the market that you’re going to need for the short term,” she says. “I know it may not earn much [interest] in a bank but it is secure and it’s for a very targeted expense.”

Preparing financially isn’t the only step to home ownership . Buying a house is a complex, long-term endeavor that requires a lot of mental prep work. In a FINRA survey of more than 25,000 homeowners and renters, 40% of renters answered a basic question about 15-year and 30-year mortgages incorrectly, compared to just 19% of homeowners.

“No one should buy a home if they can't understand basic finance,” says Ilyce Glink, author of “100 Questions Every First-time Home Buyer Should Ask”. “The quick way to bankruptcy is to buy a house you can't afford, get locked into mortgage payments, real estate tax bills, and maintenance and upkeep expenses.”

Glink has written dozens of articles available for free with tips for first-time home buyers. But even she recognizes that home ownership isn’t for everyone. Sometimes, renting just makes more sense.

“Choose renting if you don't know where you're going to want to live in five years, if your employment situation isn't stable, and if you can't currently set aside 20% of your after-tax income into a savings account,” she says. “You might also choose renting if you're currently dating someone and hope to be in a long-term stable relationship that involves living together because otherwise you might buy a condo that's too small for your expanding family.”

Monday, October 20, 2014

Here's why renters in America feel trapped

Here's why renters in America feel trapped

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Inflation will soar, dollar will fall and home prices and rents will continue to rise in Phoenix Metro.

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