You’ve just received another rent increase from your landlord and you’re starting to wonder if it’s time to buy a home or condo. That’s the question many people are asking as rents continue to escalate across the nation. Buying a home is not for everyone, however, if you are wondering if it makes financial sense, here are some indicators that it may be time to purchase your own place.
The average mortgage payment in the U.S. is now less than the average rent. The median rent for a two-bedroom apartment in the U.S. is $1,330. But if you are in a high-cost city like San Francisco or Seattle, rents can run as high as $5,000. Renters in Austin, Chicago or Denver can expect to pay $2,000 or $3,000 for that same two-bedroom apartment. Rents have skyrocketed in many cities across the country; so high that many of us are paying 50 to 60 percent (or even more) of our income just to keep a roof over our heads. Most financial experts say you should only pay 20 to 30 percent of your income for rent, so something is out of whack.
When you weigh that against the average mortgage payment in the country, which is just over $1,100 a month (obviously higher in cities such as New York, San Francisco and Washington, D.C.), and mortgage loan rates that continue dropping into the 3 percent range, home affordability looks better and better. With a fixed mortgage your monthly costs stay the same over the term of the loan, unlike rents which can (and usually do) go up at the end of the lease.
Other economic factors that lean towards buying a home:
- Rents are predicted to rise 2 percent each year, eating more out of your paycheck
- Housing prices are rising, meaning they are a good investment against inflation
- More couples are having children and planning on buying a home, which may create shortages and push home prices even higher
- The costs associated with purchasing a home aren’t much more than first and last month’s rent, application fees and the security deposit required for most rental situations
Proponents of renting site the lack of maintenance and repair costs, as well as the freedom to move to a new area as reasons not to buy. However, renters never gain equity and they miss out on the tax advantages homes afford.
Before you buy, these are important things to consider:
- Length of stay – unless you are investing in a rising market, you should plan on staying in that home for at least five to seven years
- Down payment – to avoid mortgage insurance you will need 20 percent down; that may drain your funds
- Don’t forget about closing costs – you can often negotiate with the seller on these but there will still be inspection, title company and real estate commissions to be paid and they can add up to thousands of dollars
- Costs related to owning a home – local taxes, maintenance, repairs and insurance all add to the monthly mortgage so make sure you factor these into your budget
But there are other benefits beyond the budget to being a homeowner. You get to paint it the colors you like, knock out walls or add a room, change appliances and create the landscape plan of your dreams.
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