Renting vs. Buying
It’s the American dream, buy a home and raise a family. For many, buying a home just feels like the right thing to do, but really couldn’t tell you the financial benefits for doing so. In fact, buying for many is simply not worth the cost. There are obvious advantages to owning a home; likewise, there are numerous positives to not owning a home. Here are few thoughts about the benefits of renting that many do not discuss…
Renting is cheaper, unless you bought your house in the 1920’s; I doubt buying a home would save you money compared to renting. Have you ever thought of all the added expenses of owning a home? Consider the following…
Mortgage – Generally around $300 more than renting a month.
Property Taxes – Depending on the home, a good number is $200 a month.
HOA Dues – A lot of communities surrounding cites belong to an Association, Dues vary, but $200 is another common amount.
Home Maintenance – Over the course of a year, general maintenance and upgrades to a home could cost around $150 a month.
PMI Insurance – Private Mortgage Insurance, which is insurance you pay on your mortgage if you don’t own 20% of your home, can cost around $100 a month.
Adding It Up
$950 Extra a month to own a house vs. renting (approximately).
Of course, the numbers above can be drastically different based on multiple scenarios like location, state taxes, and your own personal financial makeup. But the numbers above are similar to my situation living near Washington DC.
I think everyone should consider buying a home at some point in their life in order to retire without a monthly mortgage or rent payment. However, the appropriate time to purchase a house might vary for many. For example, why purchase a home if you never plan on owning it? Why purchase a home on an interest only mortgage, which is essentially renting the home from the bank plus the added expenses of homeownership?
Factored over time, a savings of $950 a month stocked away and put to use in the markets will make more money in addition to being very diversified. Don’t get me wrong, a home can increase in value over a quick period, but like many have experienced lately, they can deprecate just as fast. If the stock market isn’t the place for your money, rent until you can actually afford a 20% down payment, this way you can avoid paying the PMI insurance as well as receive a better interest rate. Many will disagree, but renting is a bargain and each year that goes by, renting can put yourself financialy ahead in life much faster than purchasing a home.
Having said all of this, I own a home and have the additional monthly expenses : ) $
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Comments
@ Tiffanie: I know exactly what you mean…The big idea about buying is that all the money you spend on a mortgage you could theoretically get back when you sell. Its riskier but the reward is more of course.
Some of the real estate “gurus” you see on TV say that if you live in a house for the minimum of 2 years (to avoid capital gains on reselling) and increase the value by DIY remodeling, you can get your dream house paid for in something like 10 years. A tantalizing prospect…
Frank is right though: now is not the time to sell and you are subject to market fluctuation that can hamper progress.
It’s strange to think about, but your house would actually have to more than double in value for you to get your money back when you sell it, right after it’s paid for. This is because the interest payments are more than the actual value of the home. Say you buy a $200,000 house, the interest paid in 30 years is $255,000. Making your total home purchase $455,000.
[...] The Federal Government’s Role- The Federal Government has advocated homeownership for some time now. The idea has essentially been the cornerstone of the American dream. The Government practically begs you to purchase a home by offering tax incentives, Government backed mortgages, and various other programs designed to aid in purchasing a home. The reality is that many people simply should not purchase a home, even if on paper it’s somewhat affordable. (If you have time, read this article where we weigh the pros and cons of Renting vs. Buying). [...]
i’ve been renting since i was 18 (so 6 years now) and i’m getting so tired of it! i will admit that i love the low price of $500 rent for a 2 bedroom apartment (and that’s including the $20 cat fee + heat & water are included). so i know it’s what’s best for us right now, but I can’t help but think how much we’ve “wasted” in rent.