One of the biggest financial decisions most people will face is buying a home versus renting. Renting comes with the security of having that (hopefully reliable) backup maintenance crew or landlord. Buying offers the potential to invest in your own future and grow your investment over time, as well as (sometimes not insignificant) upfront and recurring costs.
For some, buying is the wise investment. For others, renting is the best choice for the time being. To determine which is best for you, you first need to determine whether you can afford to buy. Other factors, such as down payment, closing costs, recurring fees (both renting and buying), the time you will stay in your new home, and the home’s potential for appreciation also factor into your decision.
With mortgage rates nearing a 40 year low, buying is a tempting option for some. Many sites offer free rent vs. buy calculators to help decide which option best fits you and your specific financial situation.
Realtor.org offers a wonderful side-by-side cost comparison based on a nine year period. (See below.) The bottom line? If you can afford more than $900/month and the up-front costs – buy.
Costs after 9 years
Initial costs $60,000 $888
Recurring costs $163,793 $107,509
Opportunity costs $44,642 $15,478
Net proceeds $145,448 $888
Total $122,987 $122,987
Ginnie Mae offers another scenario to illustrate the cost/benefit analysis:
The renter starts out paying $800 per month with annual increases of 5% The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000
After 6 years, the homeowner’s payment is lower than the renter’s monthly payment.
With the tax savings of home ownership, the homeowner’s payment is less than the rental payment after 3 years.
When it comes down to it, this is a huge and very personal situation. I encourage you to speak to a realtor, as well as a financial adviser or mortgage lender to determine which option is best for you.
Stay tuned for next week’s blog – The Cost of Waiting to Sell.
Feel free to reach out to me if you have any questions. With over 20 years in the business, I can certainly offer my advice. Your thoughts and personal experiences on this important decision are welcome in the comments below.