If you are wondering if buying is better than renting a home – here’s your answer. GO BUY NOW.
That’s right. Buying a home is a far better bet than renting. This assumes 3 things:
- You’ll stay in your home and won’t move for 7 years.
- You can borrow money at current low rates.
- You itemize your tax deductions and that the deduction for mortgage interest stays in place.
This was the conclusion of the Investor’s Business Daily* in an article they recently published. The article did point out that housing prices have started to rise. (In fact they’ve gone up 2.3% over the last 12 months). But rents have risen more than twice as much over the same time period making it yet more expensive to rent. Also, mortgage interest rates have fallen (currently about 3.5% for a 30 year fixed rate mortgage) over the last year. These are all reasons why home ownership is so affordable right now.
What really shocked me when I read this article was just how much cheaper it is to buy vs. rent. Their study indicated that buying your home is actually 45% less expensive than renting in 40 of the largest U.S. metro areas. That means the typical renter would save close to $800 a month by moving out of her rental and buying a place instead. That’s a lot of jelly beans baby!
The best way to save a ton on your home purchase is by getting a low interest rate on your mortgage. And the best way to insure you get the lowest rate possible is to make sure there are no errors on your credit report. Get your free credit report without signing up for “free trials” and without using your credit card.
And if you are like most people and you stay in your home for at least 7 years before you move, it’s cheaper to own than rent in all of the 100 biggest metropolitan areas in the United States.
How can you use this information?
For the right person in the right circumstance, this could be the best time ever to buy a home. Given that home ownership is so damn affordable right now, you owe it to yourself to see if you can take advantage of the situation.
1. Find out if you qualify for a mortgage and if so, how much?
Assuming you’re not swimming in cash, you’re going to need to get a mortgage if you want to buy property. The rate that you pay for your loan will largely depend on how good your credit is. If you qualify for a 3.5% mortgage you’ll be able to buy a lot more house than if you are offered 5% or more. So find out now how much your loan is going to cost you and how much money the bank is willing to provide.
But don’t stop there. Make sure you understand the true cost of owning a home. That includes tax, insurance, maintenance and repairs. Make sure you understand all these costs and that you can handle them. Also, make sure you have a sufficient emergency fund to back you up if something unexpected happens like a leaky roof or a broken refrigerator.
2. Talk to your CPA
One of the big plusses that make home ownership so damn affordable right now is the IRS tax incentive to own property. That incentive is the ability to write off your mortgage interest against income. That means if you are paying off a mortgage, it’s going to reduce your tax liability in most instances. Talk to your CPA or tax advisor to understand just how much tax money you’ll save by owning your home. This will depend on the tax bracket you are in and the deductions you take. This is a super big deal so please don’t gloss over it.
3. Are You A Rambler?
It’s a little hard to predict the future but you’re going to have to break out your crystal ball and try to figure out how long you’re going to stay in the house. How solid is your job? How much do you like the area? Does your spouse feel the same way (assuming you are married)? Do you have a growing family? All these questions have to be answered if you want to get a sense of how long you are likely to stay in your home.
This is important because it is expensive to buy and sell a home. You have to consider the commissions you’re going to have to pay, the moving expense, the costs to get a new mortgage, new furniture and landscaping too. The list goes on and on. But the longer you stay put in one house, the more years you have to spread that cost over.
These are national statistics and your own personal situation has a lot to do with this decision. But all things being equal, this is a great time to own and a stinky time to rent. If you’ve been on the fence and haven’t decided which direction to go in, take a good hard look at the numbers again. It might just be time to make a move.
Are you buying a home now? Are you staying away from real estate? Why or why not?
I’d also say that it’s a great time to buy income producing property — if it meets the criteria.
Neal Frankle says
Couldn’t agree more. Thanks.