Buy vs Rent

The current market has allowed many buyers able to afford home loans and break into the ownership arena. Home prices are anywhere between 30-50% less than they were 5 years ago while incomes have stayed the same. In many markets it can be more affordable to own and pay a mortgage than pay rent.

With interest rates between 4.5% and 5.5% a good rule of thumb for ownership is for every 100,000 of home price the combination of taxes, insurance, and mortgage payment is $600 per month.  The following table can be used to estimate housing costs for a VA, FHA, or conventional loan with no mortgage insurance.

$100,000 home $600/month

$150,000 home $900/month

$200,000 home $1200/month

$250,000 home $1500/month

$300,000 home $1800/month

$350,000 home $2100/month

$400,000 home $2400/month

$450,000 home $2700/month

$500,000 home $3000/month

This assumption is if there is no down payment other than the earnest money deposit. Any down payment will reduce this payment per month. It may make more sense to buy than to rent if you plan on living in the home for more than 5 years, living in the home forever, or keeping the home for the rest of your life and renting it out to a tenant after you move out in 3-5 years.

Buying

Pros:

A mortgage is considered “good” debt—a fixed, installment loan, which will look great on your credit history

Typically, real estate value can be counted on to increase over time, making your house a relatively safe (if conservative) investment

Owning a home offers significant tax breaks. Generally, the interest on your mortgage is deductable.

Cons:

Other than education, a mortgage will probably be the biggest debt you take on in life.

You become physically—and fiscally—responsible for repairs and upkeep

You have less mobility and have to plan before you move; If you can’t plan, don’t buy.

Renting

Pros:

You are not responsible for any upkeep or repairs, so your home-related costs are fixed

You have great mobility; therefore, if you find a better deal, you can pick up and move with typically just 2­-4 weeks’ notice

 Cons:

You never own a home.

You get no tax breaks or deductions for renting.

You never acquire equity in a home or leverage for other real estate transactions.

Your rent money is paid out with no return on investment.

Rents are always increasing with time while your mortgage stays the same as when you first bought if it’s a fixed rate loan.

You never build wealth through real estate.

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