Are you a renter who’s been considering buying a home of your own?  You might want to start “considering” a lot harder.   Why?  Because as home prices have declined over the last two years in many areas, the gap between the amount you pay to rent and the amount that you’d pay for a mortgage payment is narrowing.

In fact, according to a recent AP story, “the gap between the monthly mortgage payment on a median-priced home and the median rent has shrunk from $777 a month to just $221 in the past three years.”

And in some areas—especially communities that were hard-hit by the recent downturn—that gap is even smaller.  As little as $100 in places like Atlanta, St. Louis or Indianapolis.

So here’s what I mean.  You live in a nice area—nothing too fancy—and pay $650 a month for a decent two bedroom apartment.  For a 3 bedroom, two-bath starter home in the same area, your monthly mortgage payment could be as little as $900—a difference of $250.   Plus, you could have all of the benefits of home ownership, including tax benefits, the opportunity to earn equity and more.   And until November, you can also take advantage of the federal homebuyer credit that will cover up to $8000 of your home purchase price.

Now I admit it, I’m in the lending industry (hence, my writing of this blog) so I happen to believe that homeownership is a good thing.  But I also know that it doesn’t make sense for everyone, all the time.   So here are a few things that you’re going to want to look at before you grab the keys to your first home:

1. Homeowners, unlike renters, have the chance to make changes to their living environment.  They can paint, upgrade countertops and appliances, install new flooring and pretty much do what they want.  At the same time, homeowners must pay taxes, perform regular maintenance and upkeep (unless you want your neighbors to despise you) and foot the bill when things like water heaters break.
2. If you’re planning on moving in the next year or two, or if your job is unstable, renting generally provides more flexibility when or if you need to move.   But if you’re happy with your job and your neighborhood, and you don’t anticipate moving in the next 5 years or more, homeownership provides you the stability of knowing how much your payment will be (except for taxes—no one can guess that one) month after month.  You don’t have to worry about rent increases or having your complex go condo.
3. If you haven’t really thought about homeownership until now, have a hard time making payments or don’t understand the process, you may want to take a step back and learn more about how to prepare for homeownership.   On the other hand, if you’ve been preparing for homeownership over the last several years by paying down your debt, keeping your credit clean and saving money for a down payment, there are a lot of bargains out there to be had.  Moving now, when the market is just starting its recovery cycle, may give you an unprecedented opportunity to earn equity.

So, if you still think that now may be the time for you to enter the world of homeownership, start the process by talking with an ethical and transparent loan officer and getting pre-qualified.    I cannot recommend strongly enough the importance of working with one who is committed to absolute transparency in lending;  in other words, one who has no problem showing you exactly what he or she is earning on the loan—including precisely how the yield spread premium is being used.