Is It Better to Buy or Rent a House? A Simple Calculation
If you’re considering buying a house, you’ve probably heard the old adage that renting is just throwing money away. While it’s true that owning a home can be a great investment, it’s not always the best choice for everyone. In fact, depending on your situation, renting might actually be the better option. So, how do you know which is right for you? The answer lies in a simple calculation that can help you determine whether it makes more sense to rent or buy.
Real estate agent John Doe uses a quick gauge calculator to show how he analyzes the market. Let’s say you’re considering buying a house for $150,000. You plan to put 3.5% down, which qualifies you for an FHA loan. Your interest rate is 6.5%, and your monthly mortgage payment will be $1,079.
John uses the market to determine what you should pay for rent. For example, he says property worth $150,000 should be rented for at least $1,400-$1,500 per month. So, if you were to rent a house in this price range, you’d be paying roughly the same amount as your monthly mortgage payment.
If you were to rent, you’d have to come up with two months’ rent, which would be around $2,500 to $3,000. But if you were to buy, you’d have to come up with 3.5% down, which is $5,250. However, in John’s market, it’s common for sellers to give buyers a credit of $2,000-$3,000. So, in some cases, it may actually be less expensive to buy a house than to rent one.
As you move up in price point, the decision to rent or buy becomes more complicated. For instance, if you were looking at a $250,000 house, you’d have to come up with more money upfront, and your monthly mortgage payment would be $1,700. However, that’s still less than what the house would typically rent for.
Ultimately, the decision to rent or buy depends on your specific situation. While buying a house can be a great investment, it’s not always the best choice for everyone. If you’re not sure what to do, use John’s simple calculation to get an idea of what you’d be paying each month for a mortgage versus rent. And don’t forget to take into account factors like maintenance costs, property taxes, and homeowners’ insurance.
In conclusion, while renting may seem like throwing money away, it’s not always the case. Depending on your situation, it may actually be less expensive to rent than to buy. Before making a decision, do your research and use a simple calculation to get an idea of what you’d be paying each month.
