I know what the American Dream is. I know how so many people strive for home-ownership! However, the grass is not always greener on the other side. If you are currently renting, you will soon find out how smart you really are!!!
Reason #1: Lower Up Front Cost & Monthly Payment When Renting
I know this does not make sense right now, but after you read this, it will. Let's take a real house that was just listed on the market just recently on realtor.com.
It is a 3-bedroom, 2-bath home located at 112 24th Street in Sioux City, IA on the market for $219,000. Let's assume that they would take an offer of $200,000. Currently zillow.com has the market value of this home listed at around $161,127 and has it at a rent estimate of $1,269/month.
If you purchase the home, you would have to put at least 5% down
(Purchase Price x .05 = $10,000). That would make the loan amount $190,000 (Purchase Price - Down Payment). Let's say that you get a mortgage for 5% at 30 years. That would make the payment $1,074. However, you didn't put 20% down, so now you have to pay mortgage insurance as well ($70/month). Now you have to pay taxes on the home. That is something you have to pay, or they take your property away from you! I just looked it up, and the taxes on this home right now are $3,252 per year ($271 / month). Finally, the bank will not give you a loan without having it insured. Let's assume that you get insurance for around $900 per year ($75 per month). In total, we have $1490 (1074+70+271+75). So, for 30 years of your life, you will have to pay $1,490 toward your house payment. However, that still does not include repairs and maintenance. Just with big repairs over the time of your loan, you would pay around $102.78/month ($37,000/30/12). That would make your total payment $1,592.78 for the first 30 years really.
Let's only put in the bigger repairs. There will be a lot of smaller repairs as well, but we don't have time in this article to cover everything.
If you rent a home, you would only have to put the deposit down (probably the same as the rent amount - $1,269). Then you will pay $1,269 per month. You will have no repair expenses, and you will have no worries about repair costs the entire time you rent.
As you can see, for the first 30 years, you will have a higher monthly payment purchasing than renting. After 30 years, you only have the taxes, insurance, and repairs. However, how sure are you that you are staying in this home for your entire lifetime? If not, it actually makes more sense to rent based on monthly payment. In fact, the shorter amount of time you will be in a home, the more sense it makes to rent.