Buying vs. Renting a Home

Is home ownership right for you? 

Before making a hasty move, review the details and make the financial decision that is right for you.  While owning a home may be beneficial for some, many people find renting to be a better option. There are plenty of examples that show how renting can save consumers a considerable amount of money.  However, the decision to rent versus buying a home is purely a personal choice.

  Advantages Considerations
Buy Property builds equity

Sense of community, stability, and security

Free to change decor and landscaping

Not dependent on landlord to maintain property
Responsible for maintenance

Responsible for property taxes

Possibility of foreclosure and loss of equity

Less mobility than renting
Rent Little or no responsibility for maintenance

Easier to move
No tax benefits

No equity is built up

No control over rent increases

Possibility of eviction
Chart Courtesy of Ginny Mae

If you decide to buy a home, your income, savings, and monthly expenses play an important role in determining how large a mortgage you can afford. To figure out the amount you can afford, use a mortgage calculator.

Savings: Buying

In many cases, the amount of money a renter spends on rent can be about the same as or less than the amount a homeowner spends on a mortgage. With the tax benefit for homeowners, the savings can be significant.

Buy vs. Rent Comparison

The chart below shows a cost comparison for a renter and a homeowner over a seven year period.

  • The renter starts out paying $800 per month with annual increases of 5%
  • The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000
  • After 6 years, the homeowner's payment is lower than the renter's monthly payment
  • With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years

Years Rent Payment Mortgage Payment Monthly Difference After Tax Savings Yearly Difference After Tax Savings
1 800 1000 -200 -50 -2400 -600
2 840 1000 -160 -10 -1920 -120
3 882 1000 -118 +32 -1416 +384
4 926 1000 -74 +76 -888 +912
5 972 1000 -28 +122 -336 +1464
6 1021 1000 +21 +171 +252 +2052
7 1072 1000 +72 +222 +864 +2664
8-30 Savings increase every year

Monthly Expenses: Buying

Your rental company takes part of your rent payment to cover certain housing expenses. When you decide to purchase a home, you accept responsibility for paying for these expenses (listed below). They are additional costs to your monthly mortgage payment and should be included in your budget estimates:

Property Taxes and Special Assessments
Home/Hazard Insurance
Utilities
Maintenance
Home Owner Association (HOA) Fee: Doesn't apply to all purchases. It pays for trash and snow removal and maintenance of common grounds if applicable.
Membership Fee: It may pay for recreational facilities and other services (e.g. cable TV).

HOME BUYING RESOURCES

Home-shopping Checklist  - Take this list with you when comparing homes.

Read NCUA’s article on Home Ownership and Mortgage Options

Fair Housing: Equal Opportunity for All (brochure)

Avoid Predatory Lenders

 
 

 
To learn more about buying a home, visit: