Buying a Home vs. Renting Today

Buying a Home vs. Renting Today

As everyone knows, it is harder to obtain a loan for a home today than it was a few years ago.  Because of tighter requirements for purchasing a home, rental rates have increased significantly as the cost of purchasing a home has decreased.

Prices of homes have remained steady but the interest rates are at an all time low around 4%.  As you can see in the illustration below, it only takes 1½ years or more of ownership of a home to come out ahead of leasing a home. The 1½ years is the break-even point if you were to lease a home versus buying a home and selling it 1 ½ years later.  The illustration is based on the following:

Value of Home:  $200,000     Interest Rate:  4%     Years Amortized:  30 years    Rental Rate:   $1,500

The 3 columns illustrate the costs associated with purchasing vs. leasing and selling the  home in 1 ½ years, 5 years or 10 years.  The costs are at breakeven after 1½ years, after 5 years a homeowner would save $34,500 during that 5 year period, and after 10 years the homeowner would save $87,300 vs. renting the home for 10 years.

Home Value $200,000.00                           Purchase                                         Rent
Down Payment 20%
Interest Rate 4%
Yrs. Amortized 30
P&I payments                                                    $765
Property Taxes                                                  $325
Insurance                                                           $100. 50                                         $50
Home Maintenance                                        $150
Rent Price                                                                                                                      $1,500
Monthly Payment                                           $1,340                                              $1,550
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