Rent vs. Buy
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There are many things to consider when buying a home. It is likely the purchase of a home will be the most expensive purchase of your life, you will want to consider several things before you even start to look for a home.
If you are currently renting, you need to know about the possible advantages of home ownership, and if they apply to your current situation. An important question to ask yourself: Are you financially ready to make such a large investment? How much of a home can you afford?
Compare the cost of owning and renting the same home. This is simple enough to do. Just take the monthly mortgage and other housing costs and compare it with the cost of renting that same property. Remember to figure the tax savings by taking the cost of the mortgage payment plus property taxes and multiplying that by your tax rate. This will give you a good idea of your tax savings each month. Subtract those savings from your monthly housing costs if you were buying and compare that with the rental rate. If they are very close in monthly expense it is usually a good value to buy.
This can also be a good way to compare the current housing market. It will tell you if the current housing is a fair value, over priced or under priced. Just remember that in some very desirable areas it will almost always cost more to buy then to rent.
The Advantages of Home Ownership
It should cost you less to own a home then to rent. There is a fairly
simple calculation that will tell you this:
Take your monthly rent multiply by 200 = purchase price of home
($___________rent per month X 200 = $_______________)
Example: $900 X 200 = $180,000
In addition to the current cost of rent vs. buying, you must also take into consideration the future cost. As a renter you are exposed to future rent increases.
There are many advantages to home ownership. The value of a home usually increases during the years you are paying your loan down. This increase in equity is building up the wealth you accumulate in your home. Paying on a mortgage over 30 years can guarantee that you will own your home free and clear when you retire. If you choose to move after retirement to a less expensive home, you can use the difference in value to free up a lot of extra income you currently have in your home. The home equity you are building in your home can also be borrowed against at some future time for college expenses, vacations, remodeling the home or almost anything else you might need the money for.
Another benefit to home ownership is that you are not subjected to the intrusion of a landlord. Generally no one can tell you what you can and can not do with the property. If you need repairs, you are not at the whim of someone else as to when, how, or why, it should be fixed. As a homeowner, you have the security of knowing that you have a place to live, as long as you continue to meet your mortgage and tax obligations.
The Advantages of Renting
It is easier to find a place to rent
then it is to find a place to buy. If repairs are needed, you don’t
have to concern yourself with the cost involved to fix it. If the
quality of the repair is not your concern, it doesn’t matter
as much, this is not your property.
As a renter, your money is not tied up in a property. This allows you to have more flexibility in deciding where you live and how long you want to stay there. You can keep your extra cash for other things that come up in your life, you don’t have to budget for housing repairs and expenses. This allows you better diversification of your money.
Renting will also be cheaper then buying if you will be moving soon. It costs money to buy and sell a house. There are real estate commissions, title fees, loan fees, and inspections. A home must appreciate approximately 15% just to recoup these costs. If you plan on moving within a three-year period it may make better financial sense to rent then to own.