It’s a lifelong dream of many people to own their own house, but in today’s economic climate, many opt to rent instead. It seems to be a lot cheaper than owning a house, considering the purchase price, taxes, upkeep and maintenance. Actually, this might be an excellent time to buy a house and it could be cheaper than renting.
It’s A Buyer’s Market
Right now, it’s a buyer’s market. This is a real estate term meaning it’s the buyer who has the best opportunities. Home prices have dropped dramatically, which is bad news for people who already own homes but good news for people looking to buy a house. It is possible to find and purchase a house with payments at or below the rent you are currently paying.
How Buying Is Cheaper Than Renting
You might think between a mortgage, interest, taxes and maintenance a home would be more expensive than renting, and in the short term, this might be correct. Keep in mind you’re looking at a much bigger picture here. By buying a home, you aren’t subject to someone else’s rules and you don’t run the risk of your place of residence is sold out from underneath you. You don’t have to deal with a lease or the whims of a landlord, and you don’t have the struggles to get something fixed should something go wrong or break. Buying a home is also an investment in the future. If you get a good enough price on the home and it is well within your budget, the chances are good if you decide to sell in the future you will recoup your investment.
What You Need To Buy A House
First of all, you are going to need a good credit score. Before you even consider buying a home, it is best to implement a credit plan to get your credit in good shape. Evaluate your credit debt, and do what you can to get it under control. Remember every credit card application will ding your credit score, so try to keep those to a minimum. Evaluate the best credit card deals, and choose a credit card which offers the best benefits with the lowest interest rates. Make regular payments, and don’t charge more than you can pay back in a billing cycle to save yourself paying interest fees or late charges.
Next, you will need a down payment and financing from a bank. With a large down payment, you will be able to take advantage of a low interest rate for the loan and achieve a low monthly payment which can be much cheaper than rent. The upside to this is also with a low mortgage, you may be able to pay off your home a lot quicker by doubling payments when you can.
Owning a home is not for everyone, but in some instances it is a prudent and advantageous investment which may be very beneficial to your overall financial picture. Don’t buy more than you can afford, and you could save a lot of money in rent over the years with something definite to show for it.
20 Comments
We were in a situation where buying was much cheaper than renting last year. Our area had had a lot of foreclosures and added to a weak job market and high rental demand, the benefit of buying was pretty high. Our plan was to put 20% down and opt for a 15 year fixed rate since it would avoid PMI, minimize interest, and lock in a historically low rate for the mortgage. Buying can be cheaper, but it is important to remember the full cost of buying since it’s not just a fixed monthly payment like rent.
@No Debt MBA – That’s true. If you don’t have the down payment and closing costs, then buying may not be the best bet until you do. I’m in a similar situation; it would probably be cheaper for us to buy not factoring in upfront costs. However, since we’re not ready yet financially, we’re waiting.
I feel like I’ll miss out if I don’t buy now, but it is hard to accumulate enough cash for the downpayment, closing costs, new applicances I’ll need to live there… etc. I have enough, but it’ll deplete my emergency fund. The problem is, a cheaper house might be easier with lower upfront costs, but most likely will need some other big expenditures (like a new roof.) I would suggest doing a really thorough analysis of what will be included in the closing costs when trying to figure out how much you need in cash up front!
@Kellen – I completely agree. I’ve done quite a few posts comparing renting and buying. The bottom line is that, like Bucksome Boomer mentioned, buying is more expensive those first few years, but then cheaper than renting over the long run. But accumulating the down payment and closing costs is the killer.
I think buying a home is more expensive the first 10 years, but after that your payment generally becomes cheaper than renting. Eventually, you get the mortgage paid off, while rent is never done.
Good point, Kay Lynn. It’s true that home equity is not guaranteed. If the house appreciates in value and you sell it for a large profit, then you downsize somewhat, then it’s all gravy!
Been thinking about doing this about our current house we just bought last year!
@Young and Thrifty – Real estate goes up and down, just like the stock market. It works great if you want a change and can sell at a profit, especially if you do downsize and save money. I’m interested to read why you’re thinking of selling already. 😉
If you get a good priced place, you’ll often find that the net monthly payment is lower than what your friends will pay for similar size apartments. Yes, you have the whole down payment to deal with, but if you feel that the market has bottomed out, then you have minimal risk of losing that when you eventually sell.
I think it’s a great time to buy a house or a condo.
The first house I bought (a condo, with my ex) was cheaper from the get-go than rent. We bought a 2br 2bath condo, including HOA fees, taxes, and insurance, in a HUD auction for less than what we’d been paying to rent a 1br apartment in a bad part of town. Now if only we hadn’t gone nuts with home improvements…
@Kay Lynn @ Bucksome Boomer
I don’t know about that. I think all the home expense added up will be pretty close to rent. The property tax keeps going up every year and maintenance isn’t cheap.
good points! however, we bought our house 7 years ago and our mortgage has not drastically changed in amount due to our property taxes continually being raised. so while we’re paying more (albeit just a little more) each month, our payment goes up every year. and i can’t say that in my area my mortgage is all that much cheaper than renting. but, i like owning my own home and having all the freedoms that come with it.
I think it still depends on when and where you are buying the house. In some areas, it makes sense to buy a house than to rent especially if the monthly payment is almost the same as the rent. However, there are also other cost that needs to be factored in such as maintenance and repairs, furnishing a house (especially if you are moving from a small apartment to a house) and car expenses (if you are moving farther from work, thus more gas and additional car maintenance expenses), and this could easily add up.
@Spruce up Your Finances – You made some good points. I think in large cities where buying is really expensive, it might make more sense to rent for a longer period than to buy (I’m thinking NYC or even Los Angeles.) However, in much of the nation I think it makes more sense to buy, especially if housing prices are within 2-3x a person’s salary and they plan on living there a while. Too bad I don’t live in the rest of the nation. 😉
I think so much depends on market timing. If you buy high and sell low (which can happen even 15 years later), then renting is probably cheaper. It also depends on how much renovation/remodeling you want to do on your house too.
There are pros and cons for everything, and money is not the only consideration. Renting may have been cheaper for us, but I love owning my own home and doing whatever I want.
@Everyday Tips – I think you’re right that money isn’t always the final deciding factor in owning a home. It depends on a lot of other things like having a place to call your own, having a great neighborhood, or the flexibility to move if you’re a renter. So many other factors play into owning vs. renting. I’d love to own something someday, but I don’t want to buy anything where I live now. I really want to move in a couple of years. At least that gives me some time to save up for a down payment!
We ended up buying a duplex because with the down payment it was cheaper than renting (if we have a renter) and we will make back our down payment in 3.5 years (between the cost of renting and what we pay for our duplex after taking into account our renter). Such makes buying worth it for me. We are now looking for another duplex to buy in the next year or so.
For us buying a home was way cheaper than renting. We bought a duplex so we could rent the other half. Our part of the mortgage payment is $150 less than our last apartment cost 🙂
@Debt Free and Broke – I love the idea of buying a duplex and living in one of the units while renting out the others. I’ve known others to do this and it always ends up being a great situation financially. I’ll have to look into some in my area. Just need to save that down payment, darn it!
@Kay Lynn @ Bucksome Boomer
I agree with Kay Lynn. When we first bought our house, it was definitely more expensive than renting. But, now it’s way cheaper than the rent at our old appartment. Adn, we are about 5-6 years from paying it off. Then, it will be way cheaper to own.
My personal opinion is, if you are going to stay in one place for a long time, you will definitely be better off buying. Most important is to pay a place off before retiring. Renting on a fixed income can be pretty risky.
We got a really good deal on our house because we were willing to put sweat equity into it. Now that it’s finished, I think we could rent it out for more than we pay per month, even considering we have a 15 year mortgage!