Rent vs. Buy: Which is Cheaper for You?
The decision to rent or buy a home depends on where you live and also on your mortgage rate, tax bracket, and time horizon.
You can save hundreds of dollars a month by buying a home instead of renting – especially if you can get today’s low mortgage rates, itemize your tax deductions and plan to live there for 7 years.
The most important housing decision that most consumers face is whether to rent or to buy. So to help them with this decision, we took a look at the key market factors affecting the cost of homeownership. First off, asking home prices have started to rebound and have risen by 2.3% year over year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%). This means that prices are lower relative to rents than they were a year ago. But more importantly, mortgage rates have fallen: the best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. Based on asking prices and rents during the summer of 2012, buying is now 45% cheaper than renting in the 100 largest U.S. metros, on average – that’s a savings of $771 a month. If you plan to stay in a home for 7 years, which is the average time that Americans traditionally live in a home before moving again, it is more affordable to buy than to rent in ALL of the 100 largest metros in the U.S.
Costs aside, the decision to rent or buy a home is very personal. There’s a strong emotional component: some people want the security of homeownership and others want the footloose freedom of renting. But the financial factors are also very personal because the decision to rent or buy depends on:
1. Can you qualify for a mortgage at the best rate available?
2. Which tax bracket are you in, and do you itemize your deductions?
3. How long will you stay in your home?
To calculate whether renting or buying costs less, we assume people can get a low mortgage rate of 3.5%, itemize their federal tax deductions and are in the 25% tax bracket, and will stay in their home for seven years.
Buying is a Slam Dunk
With a 20% down payment, a 30-year fixed mortgage rate at 3.5% and at the 25% federal tax bracket, homeownership is cheaper than renting in all of the 100 largest metros by a wide margin. There is no market where the financial decision is even close, so long as you plan to stay in the home for at least seven years, get 3.5% mortgage, and itemize your tax deductions. However, how much cheaper it is to buy a home than to rent really depends a LOT on where you live.
Raleigh, it is 43% cheaper to BUY vs Rent for a savings of over $600 / month mortgage payment vs rent payment.
In one specific Wake Forest neighborhood a 3 bedroom 2 bath town home can be purchased for $1000 down, and approx $680 / month in mortgage payments. This same town home to rent would be $995 / month. That is a $315 savings per month.
We are here to help. Contact us today for great savings in home ownership: