Through Rent to Own, Gen Z Can Be Young Homeowners
November 13, 2018 by Marty Orefice | Real Estate
Many people view homeownership as something you do at an older age once you're settling down with a family. However, a recent study shows that Gen Z is breaking the stereotype.
According to a National Association of Realtors study, people within Generation Z are two times more likely than previous generations to become home buyers at a young age.
The biggest barrier to purchasing a home for Gen Z is the cost of homeownership. Four percent of Gen Z does not want to own a home because the costs associated are too high.
What Are the Associated Costs to Homeownership?
The obvious costs to home ownership are the down payment, taxes, insurance and maintenance. However, interest, homeowners association fees and closing costs are also large-scale contenders.
Rent to own can help make some of the large fees of homeownership less burdensome.
Down Payment
Down payments are daunting. They drain your savings account, which is a big deterrent for a lot of people. More so, often times what you have in your savings account isn't enough to cover this massive up-front payment.
In terms of draining your savings, your down payment is the best money you can put into owning a home. It's the money you pay no interest on. The larger your down payment, the less interest you pay over the course of your mortgage. Beyond interest paid, your interest rate can even be lower based on a large down payment.
The money you save on interest is low-risk vs money you could earn investing, as homes tend to hold their value over time. Even if the market takes a downturn, historically, it always comes back up. Whereas, safe investments are often slow to grow and risky ones could cost you money if they fail.
That leaves coming up with such a massive down payment. There are many ways to save a down payment by cutting transportation, grocery and housing costs.
Nonetheless, rent to own is also a strong strategy for saving up a down payment.
First, you waste no extra money when you're ready to buy the home. You end the lease when you're ready instead of at the end of your contract.
That way, your money can start going toward paying down your mortgage right away instead of serving as profit for the seller.
Second, you can negotiate a kickback system with the seller called “credits.” Through credits, for every month that you pay rent, the seller contributes a certain amount to an escrow account to help you pay the down payment at closing. This is an easy way to save up money fast if you're certain about buying the rent to own home you're looking at.
No Taxes, HOA or Insurance During Rent to Own Lease
While you're renting to own, you're on the path to homeownership, but you still don't need to pay taxes, HOA or homeowners insurance. Consider rent to own as the first step to homeownership. You can gradually shift into things without taking on more than you can chew straight off the bat.
Additionally, it gives you the opportunity to learn the ins and outs of a property to ensure you're getting the best insurance rate when you do buy, you get credits for things like sprinklers and alarm systems that you might not have known existed when you signed up for a policy without living in the home first.
Additionally, you have time to learn about and potentially improve the HOA before you move in. You can figure out what they include and whether it's cheaper to pay the HOA fee than the fee for the service itself.
Maintenance Costs
Gen Z has grown a wealth of videos online that explain any question you could possibly have. As a group, maintenance costs will likely be less for Gen Z than any other generation, as they have the online resources and the technical know-how to solve problems themselves.
Rather than calling maintenance people for a job that takes a few minutes to resolve, Gen Z can save their money for larger-scale issues.
Closing Costs
For older generations, getting a loan meant checking in on a few banks where they or their family members held accounts. For Gen Z, it's a lot easier to shop around to different lending providers to find the best rates and the lowest fees.
Additionally, if you rent to own, you have your entire lease term to figure out what the best lender is, instead of getting pressured to pick one before your fast-approaching closing date.
How Can Gen Z Benefit From Rent to Own?
Generation Z grew up in the age of online returns. Something is delivered to your doorstep, you can test it out and if you don't like it you can have it picked up from your door for a small shipping fee.
That's much like the process of rent to own. You move into a home and test it out for the lease term. If you like it, you can keep it for the full cost of the home. If you don't like it, you can return it to the seller for the cost of an option fee.
To learn more about rent to own, read our how-to guide.
