Rent Vs Buy Decision | New Homes Market Center
To buy or not to buy?
Make an informed decision. Check the numbers for yourself. And, keep in mind that our Lease Buyout Program exists to help you get out of your lease without penalties – this makes the decision even easier!
Check out the math! The Federal Reserve Board estimates that homeowners have a net worth almost 36 times more than that of renters! Why is this? We’ve done a 10-year comparison of renting versus owning that clearly points out the financial gain a buyer has over a renter.
Here is the breakdown of our calculations.
The Rent Side- A lease agreement at $1000 per month
Over the last 10 years, the cost of rental housing in the US increased by an average of 3% per year (NAR). So an apartment or home renting for $1000 per month will cost more than $1,300 a month in ten years. If you stay in the same rental agreement, you can expect to pay $137,567 in rent over ten years.
Renting Over 10 Years
| Year | Monthly | Rent |
|---|---|---|
| 1 | $1,000.00 | $12,000.00 |
| 2 | $1,030.00 | $12,360.00 |
| 3 | $1,060.90 | $12,730.80 |
| 4 | $1,092.73 | $13,112.72 |
| 5 | $1,125.51 | $13,506.10 |
| 6 | $1,159.27 | $13,911.28 |
| 7 | $1,194.05 | $14,328.62 |
| 8 | $1,229.87 | $14,758.48 |
| 9 | $1,266.77 | $15,201.23 |
| 10 | $1,304.77 | $15,657.27 |
| Total Rent |
|---|
| $137,566.50 |
The Buy Side – A home purchase price of $135,000
With this scenario, the purchaser used a FHA loan with enrollment in a down payment assistance program similar to the Genesis Preferred Program. This is where the seller or builder makes a contribution to a non-profit organization that covers closing costs and FHA down payment. It assists buyers in purchasing a home with little or nothing out of pocket. We also used the National Association of Realtors® estimate of home values rising, on average, 4.5% per year.
Owning Over 10 Years
| Year | Monthly Payment | Total Annual Payment | Estimated Annual Repairs | Estimated Tax Savings | Est. Annual Appreciation (4.5%/yr) | Total Annual Costs |
|---|---|---|---|---|---|---|
| 1 | $1262.41 | $15148.92 | $1000 | $3110.54 | $6075.00 | $6963.38 |
| 2 | $1262.41 | $15148.92 | $1000 | $3085.47 | $6348.38 | $6715.07 |
| 3 | $1262.41 | $15148.92 | $1000 | $3058.73 | $6634.04 | $6456.15 |
| 4 | $1262.41 | $15148.92 | $1000 | $3030.19 | $6932.57 | $6186.16 |
| 5 | $1262.41 | $15148.92 | $1000 | $2999.74 | $7244.53 | $5904.65 |
| 6 | $1262.41 | $15148.92 | $1000 | $2967.26 | $7570.54 | $5611.12 |
| 7 | $1262.41 | $15148.92 | $1000 | $2932.60 | $7911.21 | $5305.11 |
| 8 | $1262.41 | $15148.92 | $1000 | $2895.61 | $8267.22 | $4986.09 |
| 9 | $1262.41 | $15148.92 | $1000 | $2856.15 | $8639.24 | $4653.53 |
| 10 | $1262.41 | $15148.92 | $1000 | $2814.05 | $9028.01 | $4306.86 |
| Total | $12,624.1 | $151,489.2 | $10,000 | $29,750.34 | $74,650.74 | $57,088.12 |
Side-by-Side Comparison
| Method | Initial Monthly Payment | Total Payments | Estimated Annual Repairs | Estimated Tax Savings | Estimated Annual Appreciation | Total Costs Over 10 Years |
|---|---|---|---|---|---|---|
| Buy | $1,262.41 | $151,489.20 | $10,000 | $29,750.34 | $74,650.74 | $57,088.12 |
| Rent | $1,000.00 | $137,566.50 | 0 | 0 | 0 | $137,566.50 |
*Don’t forget that you paid down over $20,000 in principle.
Total estimated house value after 10 years of appreciation at 4.5% is $209,650.36. If you sell your home at this value, you will walk away with about $96,099.58 once you pay off your mortgage. When you rent, you have nothing to walk away with.
You can see that from the scenario that homeowners most often come out better financially than renters. Now it’s up to you…take the challenge & see for yourself why it’s smart to buy.
Get pre-qualified today using our free & secure, online mortgage application!
Seek the advice of one of our licensed Realtors® to help you reach your goals!
*Monthly payment includes: principle, interest, taxes, homeowners insurance, an upfront FHA funding fee of 1.5% and monthly mortgage insurance
**Calculation based on a 6.5% interest rate and a 2.8% property tax rate
The Bottom Line
Stop throwing your money away! Homeownership is less expensive than renting if you take all the advantages into consideration such as:
- Mortgage interest deductions
- Mortgage principal accumulation
- Property tax deductions
- Home appreciation
- Ability to personalize
- Keep more money in your pocket
Renting a home does not provide tax advantages to you. Any and all tax advantages go to the landlord or property owner. As an owner you can deduct mortgage interest & real estate taxes allowing you to subtract part of your housing-related expenses from your income. Reduce your tax bill = keep more of the money you earn in your pocket!
Enjoy the rewards of home ownership
Purchasing a home is generally a sound investment. As you pay down your home loan, you build up equity. This equity turns into real money once you sell. Unlike many things you buy, a home typically increases in value over time. You also gain pride of ownership when you own a home. You can make changes that you want without a landlord’s permission and you can reap the rewards of your improvements.