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Down Payment is Obstacle in Home Purchase

Mortgage payment cheaper than rent, but down payments get in way

Nov. 12, 2015

By PAUL OWERS Sun Sentinel - Tribune News Service

Owning a house will take a smaller share of your paycheck than renting, but saving enough for a down payment continues to keep people form buying, a new report shows.

Homeowners in Florida's Palm Beach, Broward and Miami-Dade counties devote roughly 20 percent of their salaries to mortgage principal and interest, but renters pay 44 percent for housing, according to

The tri-county region is one of six metro areas among the 35 largest nationwide in which rent shares top 40 percent, Zillow said. The others are New York, Los Angeles, San Francisco, San Jose and San Diego.

Housing analysts say consumers should spend no more than 28 percent to 30 percent of their incomes on housing costs.

While homebuyers can put as little as 3.5 percent down, the standard down payment is 20 percent, which would be $44,680 for a median-valued home in South Florida, the analysis found.

Skylar Olsen, senior economist for Seattle-based Zillow, said many potential buyers have to put off owning unless they can ask family for down-payment assistance.

"Home ownership is the more affordable option, but how do you get there?" Olsen said.

Rents have risen steadily after the housing bust on demand from former homeowners who can't qualify for mortgages and young professionals who don't want to be tied down to a house. Consumers often cite recurring costs such as property taxes, insurance, maintenance and homeowner's association dues as the reason why renting is more practical than owning.

Most analysts agree that buying is the better option than renting when it comes to wealth creation, but a study from professors at Florida Atlantic and Florida International universities shows that owning isn't as clear cut of an advantage when investment opportunities for renters are considered.

According to the Beracha, Hardin & Johnson Buy vs. Rent Index, South Florida renters who invest the money they would have spent on taxes, maintenance, insurance and other costs often do just as well as homebuyers in building wealth.

Ken Johnson, an FAU economist and one of the authors of the index, said consumers should look to buy eventually. But he insists they don't have to worry if they lack the money for a down payment now.

"You've got to get in the game sooner or later, but if someone doesn't have that $44,000, they should look to find a bare-bones rental and start investing in stocks and bonds -- and they will be able to own one day."

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