Buy vs. Rent Comparison
Is it better to buy or rent? Whether renting is better than buying depends on many factors. The information listed here will assist you in helping answer this question. When the buy-vs.-rent issue comes up, consider the basics first and then drill down.
Adding up the Costs of Homeownership
The basics begin with your monthly payment. To make it an apples-to-apples comparison, you’ll need to compare your rent payment to monthly homeownership costs. Because those include more than just the principal and interest portion of a mortgage payment, typical mortgage payment calculators can be a bit misleading. You also need to estimate property taxes and homeowners insurance, as well as other potential costs. These can include private mortgage insurance, homeowner association dues and condo or common community fees. If you want to have a better idea of what your payment might be for a particular home, reach out to me and I will be happy to go over that with you.
Other costs to factor in include:
- Loan closing costs, which typically amount to three percent to five percent of the value of your loan. This covers everything from a professional appraisal to a home inspection, as well as lender fees.
- Costs for utilities, yard care and painting or other upgrades (in other words, all of the stuff the landlord usually takes care of when you rent).
- Maintenance and repairs, which homeowners can expect to total one percent to two percent of their mortgage costs annually. There will be surprise expenses too, so it’s a good idea to earmark a portion of your savings for a household emergency repair fund — in addition to your day-to-day emergency fund.
Reasons to continue renting can include:
- Mobility: Do you need to be able to move to a new city for career advancement?
- Flexibility: Buying a home means committing to a neighborhood, possibly for several years. Being able to walk to your favorite coffee shop or happy hour club may mean a lot to you now. But later, if you start a family, you’ll care about school districts more than drink specials. Trust me on this one!
- Uncertainty: Price appreciation can be elusive and dependent on your local real estate market. Home equity is never guaranteed, particularly over the short term. It’s probably a good idea to forget the old “your home is an investment” thing.
However, good reasons to buy might be:
- Tax deductions: Discount points, mortgage interest and property tax — the more you earn, the more these tax breaks are worth.
- A historic opportunity: Mortgage rates are very low. One day, we may look back on these low-interest days fondly: “Remember when rates were below 4%?”
- Help entering the market: A 20 percent down payment doesn’t have to break the deal. These days, there are ways to put down less, especially for first-time homebuyers. And saving up a down payment may be easier if you follow some savings hacks. FHA loans are only 3.5% down! There are so many great loan programs to help first time buyers.
- Price appreciation: After you buy, you’ll ultimately sell. And net proceeds of a sale are typically not taxed, with a capital gains exclusion of $250,000 — or $500,000 if you’re married and file jointly.
The Bottom Line
The real cost to own a home can be eye-opening — but the fact is, these days renting is less of a bargain than ever. Considering all of the financial and life-stage factors involved can help you quantify whether now is the time to buy, or whether you should keep on renting. Contact Me if you are interested in discussing buying. I work with a variety of buyers to help them get the most for their money while answering as many questions along the way.