Is it more cost-effective to buy a home or better to rent?
The buying versus renting debate has recently come under the spotlight once again. Every few years, the discussion resumes but the answer isn’t as straightforward as you may think.
A report on Forbes.com earlier this year, stated that “Nationally, buying is 38% cheaper than renting with the traditional 20% down, 30-year mortgage. Buying is an even better deal with a 15-year mortgage, but not as favorable with less money down.”
Buying a home brings its own set of additional expenses, including insurances, property taxes, HOA fees and any superfluous maintenance costs. But, with current rates so low, many will find that buying a home still works out as a cost-effective strategy
Some perks of buying a home are…
• Reduced moving costs – reduced moving.
• Consistent expenses – mortgages don’t fluctuate like rents can.
• Appreciation of your investment over time.
• No mercurial landlord to deal with.
In one hundred of the largest metro areas, homeownership is still cheaper than renting. Buying on average is 38% cheaper than renting, as opposed to only 35% cheaper a year ago. Falling interest rates and rising rents have served to widen the gap.
The unseen benefits of buying:
The unseen benefits of buying versus renting a home aren’t always financial but can be more valuable than mere money. The peace -of-mind and security of having your own place can be priceless. However, there are scenarios where renting could be the better option.
Buying versus renting is location dependent. If you are in California or New York, the gap is smaller and it may not be a cut-and-dried decision. In the Midwest and the South, the market is easier, keeping in mind that each area will have its own distinctive prices and rents.
The buying vs. renting model is based on a traditional 30-year fixed rate mortgage with a 20% down payment. But consumers say the main hindrance to homeownership is the down-payment. For those without savings or equity from another property, a low, down-payment mortgage might be the only solution. To compare all costs and benefits of buying versus renting, the model is calculated over a seven year period.
Is renting ever a good idea?
• If you’re a millennial with no down payment, renting may be the only option while you save.
• If you’re not in a tax bracket that makes itemizing worthwhile, a mortgage has limited benefits
• If you’ll be moving before five years are up, buying is more expensive in certain metros.
Buying is not for everyone. Undeniably, if these factors apply to you, buying could end up costing far more than renting. Buying may be 38% cheaper than renting nationally, but for some people, renting could cost less than buying even with low down payment loans.