How Much Money Can You Save by Buying a House Instead of Renting?
Deciding whether to buy a house or continue to rent is a huge financial decision. Each option has specific costs and responsibilities associated with it. While buying a home often seems more expensive upfront, the investment you make when buying a house often offsets the additional upfront costs and cost of paying for regular upkeep and repairs.
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Costs with Buying a House
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Buying a house typically requires a down payment of at least 10 percent and additional fees to cover closing costs. If you do not buy a move-in ready home, you must also factor in costs for repairs in order to make the house acceptable to live in. Homeowners must obtain homeowners insurance and are responsible for paying annual property taxes. All utilities -- including sewage, water and garbage -- become the expense of the homeowner. If something in the home breaks, it is your responsibility to fix and pay for all repairs.
Costs with Renting
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Renting a house often requires monthly rent payments and an upfront security deposit that varies based on the rental unit. Additional fees often apply for pets. In a rental unit, the cost of repairs usually falls to the owner of the property or management company. Utilities are the responsibility of the renter, but some utilities, such as water and sewage, are covered by the owners of the rental. Renting often requires moving more than when you own a house, so you must also factor in moving costs.
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Buying vs. Renting
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While the overall monthly costs of a rental may be lower than buying a house, the rent paid each month goes straight to the owner of the property rather than to paying down a mortgage. In areas with a high cost of living, renting often may be more expensive than the amount of the monthly mortgage payment from purchasing a house. For example, if an area’s average rent is $1,500 a month, an individual could purchase a $200,000 house with a 30-year mortgage and zero percent down for a monthly payment of $1,331, making it more affordable than an apartment.
Factors to Consider
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Buying a house appears to be the best option on many levels. However, it may not always be the best decision. If you only plan to live in the house for a couple years, it may not be worth the initial investment, particularly if real estate values drop while living in the home. Many buyers begin to see a financial savings after living in a house for five years or longer. If your income drops while living in a home, it may be difficult to maintain your mortgage payment, so it is not cost-effective to buy if you anticipate a decrease in income within a few years of buying the home or you could face missed mortgage payments, foreclosure and ruined credit.
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References
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