RENT or BUY: The Local Details

rent-vs-buy
The age-old question, “Is it better to buy than to rent?” If your monthly rent is $700 for a 3-bedroom home, then “NO”, if you are only looking at the monthly payment.  But you are not going to own a 3 bedroom, 1.5-bathroom house with a $700 monthly mortgage, plain and simple.

That being said, and in most cases, it is better to buy than to rent.  First, let me give the benefits.

1) Unless the area that you reside (many times major cities) has home prices that are extremely high, it is less expensive to buy (monthly mortgage payment) than to rent (monthly rent payment).

2) You will have a mortgage tax deduction that you can utilize when you file your yearly taxes that will either low your payment owed to the government, or give you a refund from the government.  (Each individual’s situation is different, so consult your tax accountant or preparer.)

3) You will build equity in your house as you pay down your balance.  That equity can either be borrowed against as in a home equity loan or most likely render you a profit if you sell your home.

4) With a fixed-rate mortgage, your monthly payment stays the same.  Rents usually increase with each coming year.

5) When you purchase, you own the home and do not have to ask permission to paint different colors, get new appliances, have a washer and dryer, if you can get a pet, etc… etc… etc…

Is there a downside to owning?   Yes.  When things break down, you can’t call the landlord–you have to fix, repair or replace yourself.  Not so bad when you need a new microwave, little more tough when you need a new heat pump or roof. But there are home warranty programs that will lessen the cost of these more expensive items.

I have attached a screenshot of mortgage calculator showing the cost of a $150,000 home which is an average price of a 3 bedroom, 1.5 bath house in Hampton.  Can you get cheaper?  Yes.  But let’s use this for a base.

Mortgage Calculator Payment at 150K

You will see that the loan amount is $144,750.  That is because if you use a FHA Loan to purchase a home (which is very popular in this region) you would need to put down 3.5% of the purchase price, or $5,250.  Thus, your borrowed amount is $144,750.  (If you are a Veteran, you would be eligible for a VA loan and no down payment is needed, you finance the entire amount.  Nonetheless, there are various grant programs available for people within certain income parameters that once can apply, as well as 100% financing for first time home buyers.)

I used an interest rate of 4.25% and a loan term of 30 years.  I also estimated the real estate tax and homeowners insurance.  Also included is private mortgage insurance (pmi) since the down payment is less than 20% of the purchase amount.

The monthly total mortgage payment is $985.33.  Is your rent higher than that?  if yes, and even it is only by $50.00, it is better to buy than to rent especially when you include the other benefits stated above.

The mortgage calculator is on my website: http://christophergarguilo.com/Calculate-Amortized-Payments for you to review.  But read all the other helpful information on the tab “BUYERS”; very helpful information.

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