Renting Vs. Buying a Home

Scenario A renter starts out paying $800 per month with annual increases of 5%. A homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000 With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years. Source: http://www.realtor.org/field-guides/field-guide-to-buying-vs-renting

You should buy a house if… You have a secure job and income You plan to live in the house more than a few years You have enough money for a down payment You can afford the monthly payment (not to exceed 35% of your gross income) Source: http://www.cbsnews.com/news/why-renters-should-consider-buying-a-home/

4 Advantages of Buying a Home Building Equity – as you pay down what you owe and the value of the property increases, you earn equity. Equity is the value of the house minus what you owe. Savings on Taxes – On your taxes, you can deduct mortgage interest and property taxes. Improvements – As a homeowner, you can paint, landscape, and improve your home to your liking. The American Dream – pride of ownership

4 Disadvantages of Buying a Home Maintenance – You pay for all repairs Rising cost of: Insurance, HOA fees and property tax (property taxes vary by location) Selling – Having to sell if you move and paying for realtor fees and closing costs Liability – If something happens on your property, you could be sued for damages

4 Advantages of Renting Maintenance – The owner of the home/apartment pays for maintenance. Predictable Costs – You will know the exact cost of rent for the period of your lease. Flexibility – At the end of your lease, you can move easily without having to sell your home. Temporary – Over time, you can live in many different places without being tied down to a home.

4 Disadvantages of Renting No Tax Benefits – You cannot write off taxes and the interest on a mortgage No Equity: You did not benefit from the value of the house/apartment going up Rent Increases – Your rent could increase at the end of your lease. Not Permanent – At the end of your lease, the property owner may not renew it.

Equity Example You buy a house for $250,000. You put $25,000 down and take out a loan for the remaining $225,000. You make payments for 10 years which reduces the amount you owe the bank. You now owe the bank $160,000 instead of $225,000. The value of your house has risen to $375,000 in those same 10 years. $375,000 (the value of your house) -$160,000 (what you still owe the bank) $215,000 (your equity)

What is equity good for? Now you are married and expecting a child. The house you bought 10 years ago is not large enough for your growing family. You can now sell your house for $375,000. The realtor’s fees and closing costs add up to $30,000. $375,000 (the value of your house) $30,000 (realtor’s fees and closing costs) -$160,000 (what you still owe the bank) $185,000 (profit) You can take the profit from the sale of this house and use it as a down payment to purchase a larger house without raising your monthly mortgage payment!

On Your Own