|
|
|
Choosing Between Renting and Buying and New Home
Which Choice is Best for You?
There are many things to consider when buying a home.
Since it is likely that the purchase of a home will be
the most expensive purchase of your life, you will want
to consider several things before you 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. Are you financially ready to
make such a large investment? How expensive of a home
can you afford? Is the current market environment
favorable for buying a home?
Renting vs. Buying
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 fairly 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. Remember,
in some very desirable areas it will almost always cost
more to buy then to rent. If the additional expense is
more then 20 to 30% you should be cautious. Be
particularly cautious if you plan on moving again in the
next 3 to 5 years.
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 multiplied by 200 = purchase
price of home
($___________rent per month X 200 = $_________________ )
Example: $900 X 200 = $180,000
In this example, the payment on a $180,000 home would be
comparable to a $900 monthly rental payment.
In addition to the current cost of rent vs. purchase,
you must also take into consideration the future cost.
As a renter you are exposed to future rent increases. It
is reasonable to expect an annual increase of 4% per
year to your rent.
There are many advantages to home ownership. The value
of a home usually increases during the years that you
are paying your loan down. This increase in equity is
building up the wealth you accumulate in your home. Even
without this expected increase in value, paying on a
mortgage over 30 years can guarantee that you will own
your home free and clear. The equity you are building in
your home can 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 something is broken you are not at the whim
of someone else as to when, how, or why it should be
fixed. A landlord can decide to sell the property and
put you out into the street. 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
Generally, it is easier to find a place to rent than it
is to find a place to buy. If you are renting, you will
more than likely put up with some minor annoyances. If
something gets broken, you don’t have to concern
yourself with the cost involved to fix it. If the
quality of the repair is not to your standard it doesn’t
matter as much if this is not your property.
As a renter you do not have your money 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 excess cash for other things
that come up in your life since you don’t have to budget
for housing repairs and expenses. This allows you to
have your money in more areas of investment such as
401k, IRA, stocks, bonds, or a small business. 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, reports 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
more financial sense to rent than to own.
Finally, don’t make the decision based on someone else’s
expectations. This is a decision that only you can make,
and only after careful consideration.
 |
|
