There are many advantages to buying a home versus renting one.
Your income, savings, and monthly expenses play an important role in
determining how large a mortgage you can afford.
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 (cable TV).
