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      Renting vs. Buying: Which is best for you?

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      Currently renting? Have stable employment? Plan on settling in a desired location for at least 7 years? If you've answered "yes" to any of these questions, maybe now is the time to buy!

      According to Trulias chief economistJed Kolko,"Although the gap between renting and buying is narrowing across the U.S., homeownership is still 38% cheaper than renting.

      Homeownership remains cheaper than renting nationally. Rising mortgage rates and home prices have narrowed the gap, but with prices slowing and rates stabilized, at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally, versus being 44% cheaper one year ago. Rates would have to rise to 10.6% for renting to be cheaper than buying and rates havent been that high since 1989.

      This model assumes buyers will qualify for a 4.5% mortgage rate on a 30-year FRM with 20% down payment. Further, it assumes buyers itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for at least seven years.

      With these assumptions, buying is 38% cheaper than renting nationwide, taking into account all of the expenditures and proceeds from buying or renting over the entire seven-year period.

      apartmentrentvbuy signhome pic rentvbuy

      The buy versus rent calculation.

      You can use this simple calculation to determine if renting or buying is right for you.

      Use the price of the home you are considering buying, divide it by your current annual rent (or the annual rent of comparable homes). This is your "housing ratio". The higher the ratio, the more it makes sense to rent. The lower the ratio, the more it makes sense to own. A ratio above 20 means you should consider renting. When the ratio is well below 20, buying becomes a more attractive option.

      How much can you spend on a home?

      As a general rule, you can spend 20 to 25 percent of your total income on housing and utilities. Many homeowners allocate as much as 35 percent of their incomes to housing. There is no cost to getting pre-qualified with a lender/mortgage banker. They can help you identify any issues with your credit and tell you exactly what your costs will be for home ownership.

      So in conclusion this is a great time to buy your first home! Come in to Century 21 Baribeau Agency today, let us help you get started!

      Article written by Deborah Johnson, Assoc. Broker Century 21 Baribeau Agency

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