Buying a home is a very personal decision for each individual. Buying a home should never be strictly a financial decision. While you should definitely consider the financials when buying there is also a sense of security and pride of owning your home.
Lately, I have been showing some rentals and have noticed that rents are on the rise, while interest rates are extremely low. If you look at the financial piece buying could cost you the same per month or less than renting. I decided to do a case study to see if that was true. So to compare apples to apples I had to find two units in a condominium complex that were alike.
Case study of rent vs buy
I was able to find two identical units in the same complex at Carter Green in Tewksbury Massachusetts. One was available for rent for $1500 a month while the other was for sale for $182,900.
| Own | Rent | |
| Purchase Price | $182,900 | |
| Rent | $1500 | |
| Down Payment | $5487 | |
| Deposits | $4500 | |
| Principal | $213 | |
| Interest | $739 | |
| PMI | $150 | |
| HOA | $150 | |
| Property Tax | $231 | |
| Monthly Payment | $1593 | $1550 |
| Tax Deduction /mo | $175 | |
| Adjusted Total | $1418 | $1550 |
The assumption are a 3% down payment at 5%. Assuming the borrower has good credit and closing costs are paid by the seller. This would be a Mass Housing loan scenario. The other assumption is the borrower is in a 25% tax bracket. One area buyers tend to forget is your interest payments are tax deductible!!
Buying actually saves you $132 a month!!
Benefits over a 10 year period of Buying vs Renting
I visited the Freddie Mac Rent vs Buy calculator and the results showed that over a 10 year period if you cashed out of your home you would have saved $85,000. This savings was calculated using a minimal rental increase of.5% a yearly home appreciation of 1.5% maintenance of $250 a month (HOA fee plus a $100 a month for additional maintenance)
Buying instead of renting maybe right for you, if:
- Have reliable income, good credit.
- Can afford at least a three percent down payment..
- Want a chance to build equity and be eligible for homeowner tax breaks and credits.
- Have adequate cash reserves to weather any storms, illness, job loss……….
- Planning to stay in your home for 5-10 years
If you are considering buying contact Kevin Vitali, your Massachusetts Realtor at 978-360-0422. Kevin can help you walk through the decision making process as well as the home buying process.
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