Investing in real estate usually means using leverage and applying for a mortgage as most investors don’t have the cash to pay for all of the up-front costs. Investors should know that mortgage conditions can differ depending on which US state they are buying investment property in.
Report: Mortgage Payments and Lifetime Interest by State
It’s widely known that property prices differ from state to state. So where you decide to invest in real estate will determine the investment costs. A major factor is the local demand and supply. If there is high demand from homebuyers and real estate investors in the location of your choice and the housing inventory is simply not accommodating for this, then house prices will be significantly higher than areas where the supply and demand are more balanced or where supply is higher than the demand. The supply-demand relationship can usually be attributed to population growth trends, among other factors. High-population areas that see regular growth will usually have higher home prices. And, with higher home prices comes higher monthly mortgage payments.
How Much, a cost information website, recently published a study mapping out the best and worst states to get a mortgage. The report takes into consideration the current market interest rates as well as Zillow median home prices. Here is what they found:
The 5 Worst States (Highest Mortgage Payments and Lifetime Interest)
- Hawaii: $334,040 Lifetime Interest & $2,293 Average Monthly Payment
- District of Columbia: $306,426 Lifetime Interest & $2,104 Average Monthly Payment
- California: $297,619 Lifetime Interest & $2,043 Average Monthly Payment
- Massachusetts: $221,625 Lifetime Interest & $1,522 Average Monthly Payment
- Washington: $211,133 Lifetime Interest & $1,450 Average Monthly Payment
The 5 Best States (Lowest Mortgage Payments and Lifetime Interest)
- West Virginia: $52,783 Lifetime Interest & $362 Average Monthly Payment
- Oklahoma: $67,460 Lifetime Interest & $463 Average Monthly Payment
- Arkansas: $69,037 Lifetime Interest & $474 Average Monthly Payment
- Mississippi: $69,363 Lifetime Interest & $476 Average Monthly Payment
- Alabama: $71,809 Lifetime Interest & $493 Average Monthly Payment
The report shows some expected trends as well as a few unexpected ones when it comes to getting a mortgage in certain states. For example, it’s not surprising to see that high-population states like California and Massachusetts have higher mortgage payments and lifetime interest. However, states like Illinois, Pennsylvania, and North Carolina (see the map below), which are high-population states, all have lower mortgage payments. So the relationship cannot be boiled down to something as simple as population and geographical location.
Still, as a real estate investor, you have a choice of where to invest in real estate. You don’t have to invest close to home. In fact, there are many benefits to out-of-state real estate investing and clearly, one can be cheaper mortgage payments. Do keep in mind, though, that mortgage lenders tend to be wary of out-of-state investors as non-owner occupied properties can present a larger risk for them. And you should never invest in a location simply because you can get cheaper rates. Your #1 priority should always be the return on investment.
Check out the map below from How Much to see how different states ranked:
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