Buying versus Renting
There are many advantages to buying a home versus renting one. View these advantages in the Buy vs. Rent Comparison Chart, or view a financial comparison of buying versus renting in the Buy vs. Rent Calculator.
Your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. To figure out the amount you can afford, please click Affordability.
Savings: Buying
In many cases, the amount of money a renter spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. With the tax benefit for homeowners, the savings can be significant.
Forced Savings
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate. Over time, history has shown that owning a home is one of the very best financial investments.
Freedom & Individualism
When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousand of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a minimum, he or she will probably not be spending much to improve the place, either.
When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.
Buy vs. Rent Comparison
The chart below shows a cost comparison for a renter and a homeowner over a seven year period.
- The renter starts out paying $800 per month with annual increases of 5%
- The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000
- After 6 years, the homeowner's payment is lower than the renter's monthly payment
- With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years
Years |
Rent Payment |
Mortgage Payment |
Monthly Difference |
After Tax Savings |
Yearly Difference |
After Tax Savings |
| 1 |
800 |
1000 |
-200 |
-50 |
-2400 |
-600 |
| 2 |
840 |
1000 |
-160 |
-10 |
-1920 |
-120 |
| 3 |
882 |
1000 |
-118 |
+32 |
-1416 |
+384 |
| 4 |
926 |
1000 |
-74 |
+76 |
-888 |
+912 |
| 5 |
972 |
1000 |
-28 |
+122 |
-336 |
+1464 |
| 6 |
1021 |
1000 |
+21 |
+171 |
+252 |
+2052 |
| 7 |
1072 |
1000 |
+72 |
+222 |
+864 |
+2664 |
| 8-30 |
|
|
Savings increase every year |
Monthly Expenses: Buying
Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for these expenses (listed below). They are additional costs to your monthly mortgage payment and should be included in your budget estimates:
- Property Taxes and Special Assessments
- Home/Hazard Insurance
- Utilities
- Maintenance
- Home Owner Association (HOA) Fee: Doesn't apply to all purchases. It pays for trash and snow removal and maintenance of common grounds if applicable.
- Membership Fee: It may pay for recreational facilities and other services (cable TV).
Additional Information on Buy vs. Rent
Buy vs. Rent Comparison Chart
Buy vs. Rent Calculator
Some information courtesy Ginnie Mae |
