Should You Buy or Rent a Home?
by Joy Moran, Keller Williams Realty Olympia
In my opinion, buying a home was the best financial decision I ever made. My starter home, purchased in 1984 was a small (under 1000 sqft) 3 bedroom 1 bath home in Eastgate, WA.
My mortgage payment at 11% interest was $700/mo. ($200 more than I had been paying for rent). 28 years later, that home would rent for $1600/mo. Had I stayed put, I would be about ready to pay off that $60,000 mortgage. Of course, property taxes have tripled over the years, so I’d now be paying over $300/mo just in taxes.
Increased Wealth, Higher FICO Scores
Historically, homeowners have increased wealth over time as compared with renters. They also have higher credit scores. One of the primary objectives of home ownership is to let the home increase in value over many years, providing financial stability for the owners as well as a place to live. These days, about 1 in 6 Americans move each year. The average American moves 11.7 times in a lifetime.
The first years of mortgage payments are mainly going to interest, with the later years payments going toward the principal. You are far better off to buy a home you can stay in for 10 or more years, rather than relocating in 5 years. Equity is gained when you stay put!
Low Prices and Low Interest Rates
Arguably, mortgage interest rates have more affect on affordability than home prices. In 1984, after seeing 17% interest rates in 1980, 11% looked great. Its all relative. Sure, homes were cheaper back then, but interest took a much larger chunk of every housing dollar.
Total Interest Paid Over 30 Years on $100,000 Mortgage
See what an unusual time we are living in, with interest rates at or near all-time lows?
Home Prices Have Come Back to Scale
Five or six years ago, there was a buying frenzy. Home prices were skyrocketing, and banks were loaning money to anyone who could fog a mirror. That’s changed. If you look at home prices over the last 100 years or so, you can see that prices are back in line with long-term trends. Pair that with low interest rates and we have housing affordability like nobody has seen since they started keeping track!
To me, the real benefit of owning a home is the freedom to modify it to fit your needs. Face it, everyone needs a place to live. It gets old staying with family or friends. Apartments usually have parking issues. Rents keep going up, and you don’t even have the freedom to leave anytime you want, because you probably signed a lease.
Tools to Compare Rent vs. Buy
Are you even in a position to buy? This calculator may help answer that question.
How do the numbers stack up? Use this calculator to crunch the numbers.
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