3 Ways Landlords Impact Your Ability to Buy a Home

If you've heard that rental rates are cooling, you may wonder why you can't feel it. According to Apartment List, the recent dip does little to ease the pain of earlier rate hikes. Even after factoring in recent dips, the national median rent is 20% higher than it was before the pandemic.

And that leads to the first example of how a landlord can impact your ability to secure a mortgage and buy a home.

1. Higher rents

Yes, it's good business for a landlord to make money while the market is hot, but that doesn't make sky-high rents any easier to accept. Let's say you live in an area where average rents have risen by 20%. If you were paying $1,200 in rent at the beginning of 2020, you would be paying $1,440 today.

According to NBC News, higher rents have played a large role in the overall rate of inflation since 2020, but rents are not the only expense impacted. You're also paying more for food and consumer goods, and though inflation -- like the price of rent -- is cooling, you've had several years of greater spending.

That pressure on your checking account may be one of the reasons why saving up for a house has become more difficult.

2. Inflexible leases

The most common lease duration is 12 months. That means once you sign a rental agreement, you'll likely need to remain in the home for 12 months or pay a fee to break the lease. According to RentRedi, leases with shorter terms are a good option for landlords who aren't quite sure they trust a renter. In other words, short-term rentals are normally written to benefit the landlord and not the tenant.

Once you've spent years saving for a down payment on a home, coming up with the funds you'll need to break a lease may be a challenge. The fee you'll be faced with if you break a lease before the term expires varies by contract, making it an important factor to consider prior to signing a rental contract.

If you've been a good tenant and have a strong, positive relationship with your landlord, they may be willing to allow you to break the lease without penalty. It certainly can't hurt to ask.

3. Investor competition

It's possible that your landlord is also an active investor. Near the beginning of the pandemic, when the Federal Reserve was still focused on keeping interest rates low and the economy chugging along, investment companies and individual real estate investors gobbled up as much property as they could get their hands on. After all, borrowing was cheap, and demand was high.

According to the national data provider CoreLogic, the number of investors purchasing single-family homes slowed to 26% by the summer of 2023. Some investors intended to flip the properties (making repairs and upgrades before reselling at a profit). Others picked up homes to use as rentals. In either case, investors are typically prepared to make competitive offers with few contingencies. In addition, many investors are able to pay cash.

If you're an everyday home buyer who can't make an all-cash offer or who wants a home inspection, competing with a landlord who's also an active investor is tough -- even if you've already received mortgage pre-approval.

While no one expects the current housing market to remain this sticky forever, it is what we're faced with today. Your best bet is always to save as much as possible for a down payment so you are as attractive a home buyer as possible in the eyes of mortgage lenders. It's also a good idea to work with a real estate agent who understands your home-buying needs.