Many people have been encouraged to keep renting their homes by the news of late about the housing market. In fact, many renters have been breathing a sigh of relief thankful that they are not amongst homeowners who have lost equity in recent times. But, who's really better off in their lifelong financial disposition? Well, each individual will have specific reasons why one situation better fits them than the other. However, time and time again the real numbers look better for homeowners. Here's my rationale. You need a place to live and it is going to cost you something. Well, a prudent person will determine what their income allows them to pay each month whether it is for rent or mortgage. Let's say it's $1,000 per month. That person will find a rental or purchase a house that amounts to that monthy payment. They will each have an upfront cost either a down payment and closing costs or first and last month's rent. Now, a good renter does get that money back when they move out. Conversely, perhaps the down payment and closing costs will be more, but perhaps it won't. In today's environment FHA is qualifying people with satisfactory credit with a 3.5% downpayment. On a $100,000.00 you put down $3,500.00. Many sellers are offsetting closing costs and Housing Counselors are providing similar assistance. Now, what happens with the $1,000.00 paid every month in the two scenarios? Well, the renter's full $1,000.00 goes to the landlord. For the homeowner a portion goes back into their pocket toward their equity in the house (principal) and the interest goes to the lender. Both people get something...a roof over their heads. But, the homeowner gets a little something more. In the end, with closely the same amounts invested as the renter, the homeowner has a house he/she can put on the market and sell. With this ownership there are insurance, tax, and maintenance costs, but a renter will also have insurance costs albeit those are normally lower when you rent. Additionally, the homeowner will be deducting the mortgage interest they pay each year when they file their annual income tax return. Many people use a
Rent Vs. Buy Calculator to help make a final decision. Keep in mind you need to compare apples to apples when using one...don't put in $1,000.00 on the rent side and then compare it to a $300,000 home purchase. Give it a try and let me know what you determine.
