Should You Buy a House or Rent?

Rent or buy a house? It’s a dilemma facing lots of people right now.  Writing that big check for a down payment can be onerous. But, with home prices and interest rates down, is this the time to grab the opportunity and buy a home? If you are paying $1,200 - $1,800 in rent each month, wouldn’t it make sense to put that money toward home equity?

The answer is yes. Renting had been a better choice for cash flow for quite awhile, but the tide has turned and now buying a home is the smarter choice.

Rentals are expected to take a climb in the next couple of years – as much as 7% annually. Combine that with home prices that are down 32% from the 2006 peak and may be showing signs of bouncing back soon. If you do the math, as economics experts have, you see that buying a home is a much better decision – if you plan to stay in that home for at least 8-10 years.

There are other factors that make buying a home the best move. Real estate tax and mortgage interest can be a tax deduction. Today, you can buy many homes with 5% down. That’s leverage that you just don’t find in other types of investments. And although renting might be easier on your cash flow, buying will save you more money in the long run.

When you buy a home, there are lots of other expenses that take on more value. Improvements you make to your home, landscaping, etc. will enhance your home’s value rather than being benefits that you just pass on to the next renter.

Buying a house means security. A renter never knows when the monthly rent payment may be increased. Getting a fixed rate loan locks in a set payment so you know what to expect for the long term. And once you have been approved for a mortgage loan, you will have an easier time qualifying for other borrowing and credit cards.

There are several tools on the internet to help you calculate the specific economic advantages in your situation to buying a home versus renting. Ginnie Mae, the Government National Mortgage Association, provides such a tool, the Rent Vs Buy Calculator. 

To use it, gather the following information:

- Your current rent payment

- The purchase price of the home you are considering buying

- The percentage of the down payment you will need

- The length or term of the loan (years you will have to pay on it)

- The interest rate of the loan

- The number of years you plan to stay in the home          

The yearly property tax rate

- The yearly home value increase rate

Crunch the numbers, and you will probably find that buying a home is the smarter choice right now.