One of the biggest decisions we have to make in our lives is whether we should buy or rent our next home. This begs the age old question, is buying cheaper than renting? With interest rates lower than ever, now is the time to consider pulling the trigger on your next home.
As home prices have started to rebound at around 2% over the last year, rental prices in the top 100 major US cities have gone up over 4%. This means that on average you could save $700 or more per month on a mortgage as opposed to renting if you stay in your home for at least 7 years. The main reason for this is that mortgage rates are around 1% lower than the previous year. But before you go gung-ho and run to your local real estate agent, there are a few things that you must first verify before you can officially say that buying is cheaper than renting.
The first thing you need to consider is if you can qualify for the best mortgage rates. If your income or credit score cannot get the best rates available, then buying may not be the cheapest option for you just yet. Another major concern you should have is what tax bracket you are in and whether you itemize your deductions. The third and no less important thing to consider is how long you intend to stay in your home. You should consider staying in your new home for at least 7 years which a safe amount of time to build enough equity in the home to overcome the interest you have to pay on the house.
You may be asking, “What if I don’t qualify for the best rates, or don't itemize my deductions?” Your cost of home ownership may go up because of these factors. Buying may still be a great option for you with many benefits to your life and future, but it isn't a slam-dunk financial decision.
Let’s just look at the ideal situation that makes buying a no-brainer over renting: If you are planning to put 20% down payment on a 30 year mortgage, you qualify for 3.5% interest, you are in the 25% tax bracket, and you itemize your deductions. By meeting this three requirements you can almost guarantee that you will be paying substantially less on an equivalent home compared to renting. A lot does depend on where you live, but if you do your home work the investment will pay dividends! Contact your broker today to continue the discussion!