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Here is a link to the Mortgage Calculator to help with some of the math in determining what your monthly payments will be
and how much home you can afford.
Mortgage Loan Calculator - Buy vs Rent
Buying a home is a big decision. Check out Area Home Listings on my home search page.
Buying vs. Renting
Which is better?
Over the past few months I have read everything I can find about Renting and Buying. In most cases, it's better to buy a home than to rent. But not in every case.
One thought during this time of uncertainty - If the only reason you are purchasing a home is for an investment with quick equity growth to turn a quick profit – those days are over for a while.
I do not think at that this time and probably not for another year that we are going to see appreciations on property in our area. Historically, since 1952 home prices have averaged an appreciation rate of 6.9% per year. This does not mean that every year there has been a 6.9% increase – there have been up and down years along this time period. We are experiencing one of these down times now. It is a buyers market and an excellent time to buy if you can hold onto the property for at least a couple of years. The old adage of buy low and sell high is in full effect now.
Some thoughts about Renting vs. Buying. Comparing buying to renting is actually a fairly complicated endeavor. Fortunately I can give you some quick rules of thumb.
You should usually buy instead of rent except when:
You intend to move within a few years
Your rent is very low (~ 2/3 or less of what your total monthly payments would be for buying a house, including taxes & insurance)
You don't expect to live more than another 15 years
If you choose to rent instead of buy, you should save and invest religiously.
Building equity vs. "throwing your money away"
A big myth is that it's better to buy because buy owning you're not "throwing your money away on rent". But when you buy a home you will still have expenses on things that don't build any equity. These include:
Closing costs
Interest on your mortgage
Property taxes
Property Insurance
Private Mortgage Insurance/PMI (if your down payment is less than 20%)
Maintenance
In fact, these “expenses” are more than you'd likely spend on rent. If the only financial advantage to buying a home were building equity, it wouldn't be enough to offset these expenses, and it would be better to rent. The reason that buying is usually better than renting is not because you avoid expenses, it's because:
You lock in your monthly payment for 15 or 30 years. (If you kept renting you'd pay more each year.)
Your house gets more valuable over time. We will return to a more stable market, we always do.
Freezing your monthly payments is where the real benefit is. Were it not for this, for many people it would make more sense to rent. This is the gem that makes home-buying really worthwhile.
There are a couple of other advantages to buying:
You can stop making payments when the loan is paid off.
This is a big advantage, but it doesn't get your costs down to zero. You will still pay for taxes, insurance, and maintenance even after your loan is paid off. On a home worth $180,000 that could be around $525/mo. Sure, that's better than the $1000/mo. you could be spending on rent, but it's not free.
You can deduct mortgage interest on your income taxes.
Here is a link to the Mortgage Calculator to help with some of the math in determining what your monthly payments will be and how much home you can afford. If you need any help with this, please do not hesitate to email or call me with questions.
Mortgage Loan Calculator - Buy vs Rent
Buying a home is a big decision. Check out Area Home Listings on my home search page.
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