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Rent vs Buy?

[This is focusing on Residential properties; for Commercial properties, see "Lease vs Buy" in our Renter/Lease Center]

 


See also (below):  Can You Afford to Buy?
Do You Know the Real Cost of Renting vs. Buying? [INFOGRAPHIC] | MyKCM





Not Convinced?   Read on...

 


 


Buy vs. Rent Comparison 

The chart below shows a cost comparison for a renter and a homeowner over a 7 year period.

The renter starts out paying $800 per month with annual increases of 5% The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000

After 6 years, the homeowner's payment is lower than the renter's monthly payment

With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years

Source: Ginnie Mae (link is external).

 

CSU, Long Beach:  Faculty and Staff Home Buyer's Guide

Rent vs. Buying Comparison

The average price of rental housing in the U.S. increases 3 percent each year. That means an apartment or home renting for $1000 per month will cost more than $1300 a month in 10 years. If you rent the same home for ten years, the total amount you will pay for rent will equal $137,567.

Rent vs. Buying Comparison Chart
Year Rent (3% Increase per Year) Annual Rent
1 $1,000 $12,000
2 $1,030 $12,360
3 $1,061 $12,731
4 $1,093 $13,113
5 $1,126 $13,506
6 $1,159 $13,911
7 $1,194 $14,329
8 $1,230 $14,758
9 $1,267 $15,201
10 $1,305 $15,657
Total Rent Paid over 10 years   $137,567

Tax Advantage of Owning a Home Results in Savings

Home ownership has tax advantages over renting a home, and those advantages can help save you money. Unlike your monthly rent, part of your monthly mortgage payment is tax deductible.

Source: CSULB


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Can You Afford to Buy?


Use this tools and related resources to help you to determine if and when you should be buying instead of renting:

Credit Score Estimator - Use this to calculate an approximate credit score.  This isn't a true "credit score", but will give you a pretty good idea of your credit worthiness.

Realtor.com - Rent vs. Buy Calculator - Use this calculator to determine whether it is a better financial decision to rent or to own a home.

Freddie Mac - Rent vs Buy Calculator - The costs of renting or buying are varied, making it hard to tell which makes better financial sense.  Use our Rent vs. Buy calculator to evaluate the costs as illustrated for Sally and Darren in the example (see article).

AARP - Rent vs Buy Calculator - This calculator helps you determine whether or not you should buy or rent a home by analyzing fees, taxes, and monthly payments.

ABA - Rent vs. Buy Calculator - If your current rent payment were going toward a house payment instead, what size mortgage would you be paying? Use this calculator to find out.

NY Times - Rent vs Buy Calculator - This calculator takes the most important costs associated with buying a house and computes the equivalent monthly rent.

iField Guide To Residential Buying vs. Renting - NAR's online guide.  Should you keep renting or is it time to purchase a residential property? The information listed here will assist you in helping them answer this question. Included are statistics and studies on homeowners and renters as well as financing options and tips.

The best way to determine if buying is an option for you is to Get Qualified for a Mortgage - this will allow you to determine if you can qualify for a mortgage, how much it will be, and what will be your monthy payments.  (If there are any problems encountered, possible solutions will usually be suggested so you can begin correcting them.)   NOTE: This is usually a cost free, no obligation process.

Even if you decide to rent, when making an offer to a prospective landlord, they will usually require submission of a credit report.  Use the following to estimate and learn about what is considered in determining you scores:  Credit Score Estimator - Want a quick idea of how lenders are likely to rate your credit? The FICO® Score Estimator, created by the inventor of the FICO® score -- Fair Isaac -- will evaluate the information you enter and estimate your credit score range based on that information.  Additional simulations and access to actual scores are available at the Fair Isaac web site: MyFICO.com

 

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