Rent vs. Buy: 3 Questions to Consider
Do you build equity with every home purchase? Is renting just throwing money away? How long do you have to stay in a home to build equity? Are rents more stable than mortgage rates?
In a recent Trulia study, statistics report “For households who move every seven years and can afford to put 20% down, it’s 37.7% cheaper to buy this year.” Buying a home is cheaper than renting in the country’s 100 largest metro areas. When you are making the choice between renting or buying your next home, ask yourself these questions first:
1. How long are you planning to stay in the location?
To build equity in a home, you need to stay more than two or three years. The average homeowner stays in their home about seven years. If you have a move coming up or are new to an area, you may want to wait to buy.
2. Are you prepared for the rising cost of rent?
Apartment rents are growing exponentially, increasing an average of 4.6% in 2015, the fastest rate since 2007. Even with a federal rate hike on the horizon, the FOMC would have to raise rates aggressively to really swing the mortgage market. Rising costs of homes are more likely to offset the market than mortgage rates.
3. Does the math add up?
Have you saved for a down payment? Have you explored all the down payment options? Are you able to afford homeowner association dues, insurance, property taxes*, utilities, repair, and upkeep?
Here’s a helpful equation:
Monthly take-home pay after taxes – (monthly debt payments + monthly expenses) = what you have left to spend on a mortgage and homeowner’s expenses.*
According to Trulia, it is still cheaper to buy than rent this year compared to last year. The recap reads, “While rates have dropped significantly compared to last year, rising prices have eroded much of the financial benefits of lower rates that would accrue to homebuyers. Homebuyers should also be more concerned about prices outpacing rents than any possible rate hike by the end of the year.”
*Please consult a tax advisor for more information.
Sources: Trulia, Wall Street Journal, New York Times