Should You Buy or Rent?
Years of pricing declines have made buying a home more affordable than renting, plus mortgage rates are still low. Does this mean you should buy?
Here are some questions to help you decide.
1) Where do you live? Cost of buying versus renting varies from city to city. Figure your price to rent ratio by determining what the average asking price in your area is by the typical rental price in the area. For example, if average sales price is $200,000 and average rent is $1500 that’s $18,000 per year, the ratio would then be 11.1. In general a price to rent ratio below 15 benefits buyers and above 20 rewards renters. Between 15-20 could go either way.
While you can rent for what your friends are paying on their homes (or most likely less), your friends are building equity and qualifying for tax write-offs while you kiss your rent dollars goodbye.
2) How long will you be living in your city? Buying a home is a long-term commitment. If you’re not planning to stay 5-7 years, think twice.
3) What is your monthly budget? As a homeowner you’ll have some new expenses including additional utility bills and upkeep as well as non-routine maintenance like emergencies of fallen trees or broken pipes (see home protection plan information). While these costs are new to an owner, you’ll be building equity and house costs won’t be exposed to inflation like they are with renting.
4) How much do you have saved? Downpayment of up to 20% is a common requirement, but keep in mind this will help you qualify for the best loan terms and eliminate additional cost of PMI (private mortgage insurance). However, downpayments as low as 3.5% are available.
The Kiper Team can help with all of your first time buying questions and even set you up on a web-based homebuyer course to help walk you through the process. Call us at 636-898-1231 today!!!
Excerpts from an article from Kiplinger.com