Renting vs Buying...What is Right For You?
Information for Buyers

by Shelley Costigan, Broker Associate, Sears Real Estate Oct. 08

When is it better to rent than to buy?  Financially speaking, the rule of thumb is that if you don't stay in a home for at least 3 years, you probably won't break even on the closing expenses incurred while buying the home.  The amount of time which you own a home makes a significant difference.  The appreciate rate, your tax bracket and rate you can earn on savings are also significant factors.

However, Most buyers live in their new home an average of seven years or more.  If that fits you, it almost always makes sense to buy rather than rent.  Prices of homes have been adjusting and buyers are finding more home for their dollar, interest rates continue to be low and there is the benefit of reducing your income taxes by itemizing deductions like property taxes & mortgage interest.  Plus, the easiest way to accumulate wealth is through home ownership.  Three out of four people have more equity in their home than assets in retirement plans, stocks, mutual funds and savings.

That said, not everybody should be a home owner, for a variety of reasons.  If your credit score is below 620, you may not receive a good interest rate for a loan.  If you have a high debt ratio you may not qualify for a loan.  Job stability is another issue.  If your job is secure, is there a chance of being relocated?  Or have you been on the job long enough to qualify?  Then there is also maintenance; all homes require upkeep and maintenance.  Not everyone has the where-with-all to tackle home repair projects.  Not everyone can afford to hire a professional to fix things.  Experts suggest you set aside 5% of the purchase price to cover maintenance expenses.  Finally, if your mortgage payment is going to be significantly higher than your rent, it might not make financial sense for you to buy.

So, how do you make the decision about which is best for you?  First, meet with a mortgage lender and make sure you can qualify and what amount of mortgage works best for your budget.  You can also get an idea of how much of a benefit financially buying would be over renting by checking out of of the many websites available.  The site I use in this following example is http://finance.move.com  Say you are currently renting for $1000/month, you qualify for a purchase of $170,000/month, have a down payment of 10%, get a loan for 30 years at 6%, are in 27% tax bracket and live in your new home for 15 years.  The savings of buying vs renting would be approximately $57,049.  Insert the numbers that work in your situation and determine what is the best decision for you.

Owning a home is the American Dream. See if this is the best time for you.