In most US cities buying is actually cheaper than renting. Between the beating home prices got and the demand for rentals, rent has risen and home prices have fallen making owning more feasible than renting. Buying a two bedroom home seems to be the way to go, especially according to Trulia, which states that 74% of the countries 50 largest cities host rental markets more expensive than owning. In the remaining 14% renting vs buying were about equal.
Not only is it cheaper to buy, but interest rates have fallen so drastically, with 4.19% being offered for a 30 year fixed loan (and 3.43 for 15 year fixed) on Monday. Now add in tax perks and you have a pretty darn good deal. The problem lies in qualifying for a loan. Stricter lenders are making it incredibly difficult, and those who still have a savings are fearful about putting it towards a home. But it may be less expensive in the long run depending on the city in which you live.
The buy-rent calculation is just one part of the decision-making process. Other factors include:
- How long you plan to stay. If you're not keeping the home for several years, transactional costs of buying and selling (e.g; commissions, closing costs) can wipe out any buying edge.
- Whether you have cash for closing. It's not easy to find banks willing to lend more than 80% of the cost of a home. That means buyers have to come up with 20% down, plus closing costs. On a $200,000 home, that's $40,000.
- Whether you can cover all the homeownership costs. It's not just the mortgage: There are property taxes, insurance, heat, utilities and regular maintenance.
- Whether you can claim the tax advantages of homeownership. Mortgage interest is deductible and can shave a lot off tax bills but this benefit accrues mostly to high income earners with substantial mortgage payments. Many borrowers claim the standard deduction on their taxes and so derive no savings from the deduction.
Even where it's cheaper to rent, it doesn't necessarily mean renters will come out ahead. A mortgage is a type of forced savings. That amount of each paycheck gets put towards something in which you lower the balance. Very different to a checking account, and a mandatory requirement. It just depends on whether or not you can afford ot put that much aside. At least when you own, you won't lose every penny you put in so long as you maintain the mortgage and the home.
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