Owning your own home is the American dream. But sometimes that doesn’t make sense!
It made good economic sense to own a home when it was appreciating and every payment you made increased the value of that investment. But that is no longer the case in today’s economy and the most you can hope for is that your home won’t depreciate too much.
So, renting or buying a home is strictly an economic question; or should be. Which makes more sense dollar for dollar?
The expense of ownership includes the mortgage – principal and interest; property taxes; homeowner’s insurance and up-keep. Ignoring the new roof every 15 years or so, or the necessity to paint the house; let’s look at a side by side cost comparison of normal monthly expenses.
Assume a 1750 sq.ft., $300,000 home:
| Expense: | Ownership | Rent |
| Monthly mortgage payment(Assumes 30 yrs. @ 6%) | $1798.65 | |
| Rent (3br/2bth 1750 sq.ft. home) | $1600 | |
| Taxes (assumes 1%) | $250 | |
| Insurance: | $65 | $35 |
| Utilities | $250 | $200 |
| Totals: | $2363.65 | $1835 |
Of course, the above numbers are estimates and vary greatly from state to state.
If you had rented for the past three years instead of paying a mortgage, you would have saved $19,031! (And that assumes a house rental at $1600 a month as opposed to a 3 bedroom apartment for $1000 to $1250 a month!) Of course, if you were paying a mortgage, you would have reduced the amount of principal you owed during that three year period by about $12,000 (this number goes up as the loan ages).
Since most houses are going down in value your investment in your home is losing money as you pay into it. Even if you ignore that, where would you like to be in 10 years – with a house that you owe $12,000 less on or with $19,000 plus interest in the bank?
Consider renting instead of the mortgage. In the long run, in this economy, it’s money in the bank!
image credit: GoTrisi
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What you say makes sound economic sense. There are many homeowners who are paying for homes that are losing money. It would certainly be a good idea to wait until the economy improves and buy just before prices start to increase.
Bill Farrell recently posted..ETQ Portable Generators
[...] wrote about renting v. buying a home this week, and I recommend everyone do [...]
[...] increased the value of that investment. But that is no longer the case in today’s economy. So, renting or buying a home is strictly an economic question; or should be. Which makes more sense dollar for [...]
Hello my Friend,
I really enjoy the way you have framed this particular situation. I look forward to your next post.