RENT VS. BUY
The decision of whether to RENT or BUY a home often begins with a decision about lifestyle. Renting provides mobility and for anyone who can't envision themselves staying in the same home or community for 5 to 7 years, renting is most likely the best option.
However if you are ready to make the move to home ownership what follows are some considerations in the rent vs. buy debate.
Home Ownership - Affordability
In many communities, a monthly mortgage payment may be lower than the average monthly rental rate. Home owners can lock in a mortgage rate and their monthly payments. Renters on the other hand may be subject to increasing rents, depending on market conditions. Personal finance experts* suggest monthly rent or monthly mortgage + taxes + home maintenance costs should equate to between 25-28% of household monthly income.
The price- to- rent ratio is a good indicator of market conditions and the favorability of renting or buying a home. This ratio represents the price of a house divided by annual cost of renting a similar home.
Home Price: $500,000
Rental (monthly): $2000
Rental (annual): $24,000
Price-To-Rent Ratio: 21
A price-to-rent ratio above 20 suggests renting as the preferred alternative.; A price-to-rent ratio of below 15 indicates homeownership may have more benefits.
The Advantages To Owning
One of the advantages of homeownership is the ability to deduct certain costs associated with home ownership from federal income tax. Most homeowners itemize their deductions. This allows, under current tax laws, the following deductions:
- Home mortgage interest
- Property real estate taxes
- State income taxes
- Personal property taxes
- Most moving expenses
Consult a tax professional for an accurate and up to date understanding of the full tax advantages of home ownership in your community.
Loan term equity is another distinct advantage of home ownership. A house is an investment as well as a home. Over time the value of the house may increase depending on market conditions. To gain a more complete understanding of the history of home values in your neighborhood consult a Curasi Realty real estate professional agent.
Other Factors To Consider
- Is the commute realistic and/or affordable?
- To purchase a home will your savings be drained? Can you continue to save money (contribute to 401K, college savings plans etc.) once you have a mortgage to pay?
- Have you factored in maintenance costs of a home? The general rule of thumb** is to budget 1% of the purchase price of the house for annual maintenance.
- In addition to the down payment have you factored in the closing and the moving costs of associated with a home purchase.
- Do you have an exit strategy if necessary?