Saving Money After Shopping In Auckland
Oaklander Sophie Lawson believes the purchase was the right choice, even if interest rates rise.
While buying is more expensive for most Auckland residents than renting, there are exceptions. Sophie Lawson and her partner bought their first home in March, and it costs them at least $ 10 a week less than rent.
The couple was asked to buy an apartment when they decided to move together and couldnt find a suitable rental in downtown Auckland for less than $ 750 a week.
It was more than they wanted to pay, so they decided to buy.
To do this, they had to move from downtown Auckland to the Te Atatu Peninsula, but it was worth it, Lawson said.
We pay $ 2,970 on our mortgage every month, so its about the same as if we were renting a house. But we do not pay on someone elses mortgage, instead we invest in something for ourselves.
Other benefits, such as greater security, no roommates, and the feeling that they are moving forward in life, far outweigh any considerations about cost, even if interest rates rise, she said.
The value of our home has gone up $ 100,000 since we bought, so this gives us more room to adjust our rates before things change a lot.
Three Assumptions That Maybe Shouldnt Be Assumed
But forget about all that. Just consider the assumptions most rent vs. buy calculators make, according to a 2015 analysis from John Burns Consulting manager Erik Franks.
Franks notes that one highly publicized calculation available online bases the comparison on a 20% down payment.
Unfortunately, many prospective home buyers dont actually put 20% down. Instead, they might only put down 10%, 5%, 3.5% , or even as little as 3% thanks to the new Fannie/Freddie guidelines.
Clearly we cant assume all buyers will put down 20% anymore, its just not todays reality.
The second outdated assumption has to do with taxes. The calculator in question puts buyers in the 25% tax bracket, meaning theyll save 25% on interest and real estate taxes paid.
But Franks says half of todays buyers obtain a mortgage less than the median resale price of $236,000. And because the entire amount of interest on such a mortgage is below the standard itemized deduction, he believes many entry-level buyers receive no tax benefit whatsoever.
Of those who do itemize, the savings may only amount to some small portion of what the calculator may claim.
The final assumption is that future home price appreciation should be included in the decision. Franks questions this, pointing to a 1-2% annual rate of appreciation during a 30-year period of falling mortgage rates.
With rates expected to rise, or at best remain flat, he believes that rate of appreciation could be an aggressive assumption.
Rent Vs Buy: A Question Of Time More Than Timing
Of course, there are periods when buying is obviously cheaper than renting. Those recently occurred when home prices and mortgage rates were both unusually low.
The trouble is, those seem to happen mainly during recessions and depressions when lenders are willing to offer mortgages only to those with stellar credit scores and huge down payments. So your chances of pulling off a classic buylowsellhigh investment strategy or a fast flip are limited.
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Renters Make More Money In The Long Run By Investing The Money They Would Otherwise Spend On A Mortgage
This advice is the renting counterpoint to treating your primary residence as a way to grow wealth . Some renters will proudly declare that, by investing the difference between their monthly rent and what a monthly mortgage payment would cost them, they stand to make more money in the long term than homeowners. While this can be the case, its not always the case. The main challenge is ensuring that the money actually gets investedits very easy to take the money you save by renting and spend it on goods and services instead.
Us Cities Where Its Cheaper To Buy Than Rent
When the COVID-19 pandemic hit America and sent people fleeing from small apartments in the biggest cities, it immediately propelled rent and home prices in opposite directions. However, despite quickly escalating home prices, there are still many places across the country where the typical monthly mortgage payment is on par or below market rent, offering opportunities for both prospective home buyers and real estate investors.
There is plenty of evidence to confirm that homes are indeed getting more expensive, especially in relation to rental units. Just before the start of 2020, home and rent prices were growing at the same rate: 3.7% year-over-year, according to the Federal Reserves tracking of the urban rent and home price indexes. Within months, however, rental costs experienced an uncharacteristic cooling off that slowed growth to less than 2% annually by April 2021. Meanwhile, the effects of the pandemic nearly quadrupled the growth rate of home prices, catapulting it to 14.6% by April 2021.
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The result is that homeowners could save as much as 35% in large metros monthly or even more in smaller locations, potentially pocketing hundreds of dollars each month.
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Buy Or Rent Compare The Costs
Many American renters want to buy houses regardless of the cost of homeownership. For some, its a rite of passage and confers unquestionably grown-up status. For others, its the security of ownership: the home is theirs for as long as they want it.
Of course, finances inevitably play a part. Youll probably need to save a down payment and closing costs. Youll also have to cover thmonthly cost of homeownership.
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Do You Have A Down Payment
In Canada, you usually have to have a down payment of at least 5% to buy a house. If you can find someone who is willing to give you a mortgage with nothing down, dont necessarily jump at the offer. This can be a poor decision. If you havent been able to save a decent amount of money for a down payment, then this probably proves that you cant afford to own a home. Read on to find out why this is usually true.
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Decide How Long You Plan To Live In The Same Place
In other words, are you planning on putting down roots in your community or are you craving more flexibility?
If you feel certain youll stay in a home for at least 5 years, buying a home could make sense. Thats because it could be a good fit both financially and emotionally you can put personal touches on your home and really make it feel like its yours.
However, renting may be the better option if you prefer to be more nomadic. For example, lets say youre really hoping to get that job promotion but its halfway across the country. You dont want to have to deal with the hassle of selling a home while transitioning to a new position. Or perhaps youve moved to a new area and want some time to get to know different neighborhoods before settling down somewhere.
You can buy a home and then sell it within a few years, but the costs are hardly worth it. Aside from initial closing and moving costs, you may be paying more closing costs when selling a home in addition to other costs, such as repairs and renovations that would make the house sell for top dollar.
Renting Is Cheaper Than Buying Almost Everywhere
According to a new study, renting costs less per month in the 50 largest metropolitan areas in the United States.
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Rent or buy? For those with a choice, theres a lot to consider. Renting doesnt tie you down, nor does it require a huge down payment. On the other hand, buying can be a profitable long-term investment with tax benefits. And lets not underestimate the peace of mind that comes from knowing that your home wont be pulled out from under you by a landlord.
The choice, however, is almost always about money, and in todays hot sellers market, a lack of available homes and skyrocketing prices have stymied many aspiring buyers. The flip side has been falling rents, especially in cities, where landlords struggle to fill record numbers of vacant apartments by offering rent cuts and concessions. Although rents show signs of recovering, its still a good time to sign a lease.
A recent study by LendingTree found that median housing costs were lower for renters than for homeowners with a mortgage in all 50 of the largest U.S. metro areas. The greatest difference between the median rent and the median cost of owning a home with a mortgage was in New York City, at $1,363 a month. San Francisco and San Jose, Calif., were next, with the gap between renting and owning exceeding $1,000.
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Mobility Required In Your Chosen Career
If your career requires you to move frequently, renting probably make more sense. Four to five years is the breakeven point for ownership, says real estate investor Gary Carmell, president of CWS Capital Partners and author of “The Philosophical Investor.””Houses are illiquid and they have high transaction costs, so your time horizon is very important,” Carmell says. Before the Great Recession, the large companies that shuffled managers from place to place every few years were willing to offer generous relocation packages. But those relocation packages have grown far stingier in the years after the financial crisis. If you’re a high-level executive with a gold-plated relocation deal, buying and selling every few years might not hurt. But if you’re a middle manager, renting is probably the wiser, more economical move.
Time To Solve The Mortgage Shortage
There are only 27,000 active mortgages in Kenya compared to 11 million in the UK
Buying a property is more expensive to start with but cheaper than renting in the long run
Today there is a simple way to make Kenya more equal, and that is by giving more Kenyans access to mortgages
There are 27,000 active mortgages in Kenya worth Sh27 billion, according to the latest CBK figures. Compare that to the 11 million active mortgages in the UK with a value of £1,600 billion .
There is a shortage of 2,000,000 housing units in Kenya. If mortgages were easily available, ordinary Kenyans could buy their own homes and increase their personal wealth.
A mortgage is expensive to start with but, as time passes, it becomes more affordable and cheaper than renting. Every salaried worker should get a mortgage and buy a property.
This does not happen because the Lands Registry is still chaotic and courts are too slow in allowing properties to be repossessed if a borrower defaults . This discourages banks from lending for mortgages even though, in theory, their loans are completely secured by the value of the property.
If the next President can solve the mortgage conundrum, he will set Kenya on a permanent path to greater wealth and stability.
Quote of the day:“The most dangerous mistake of any political force is to forget its roots.”
Flight Lieutenant Jerry Rawlings
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You Cant Afford To Own A Home Without Saving Up A Down Payment Of 20%
Affordability seems like a compelling reason to choose renting over owning a home. Buying a home is expensive and requires a large amount of capital upfront. That said, your ability to come up with a 20% down payment is not an accurate assessment of whether or not you can actually afford to buy a home. Its possible to make a large down payment, and then fail to keep up with your mortgage payments. Furthermore, even though a large down payment has its advantages, you can still purchase a home with only 5% or 10% down. Dont assume that home ownership is out of reach simply because you dont have that 20% saved up yet.
Owning Is Cheaper Than Renting In Much Of The Us
Owning a median-priced home is more affordable than the average rent on a three-bedroom property in 58% of the U.S., a new report says.
There’s a big city/suburban divide, though: Renting makes more sense in big metropolitan areas, while homeownership wins out in rural areas and suburbs, where property prices are lower.
Why it matters: Even with home prices continuing to climb, the affordability gap is narrowing, which may signal the imminent end to what’s been a steady run-up in home prices.
Driving the news: A new report by ATTOM, the big real estate database company, shows that the more populous a county, the more likely it is that renting will be cheaper than owning, and vice versa.
- The most affordable homeownership markets are in the South and Midwest, and the least are in the West and Northeast.
- The results were similar to 2021, with “the benefits of rising wages and super-low mortgage rates counteract the effects of home prices spiking,” ATTOM said.
But: In nearly 90% of the nation, home prices are rising faster than wages.
- And homeownership remains elusive for average workers: In about half the country, buying a house would consume at least a third of their paycheck more than mortgage lenders like to see.
- “That’s also good for owners looking to sell because it widens the pool of potential buyers.”
- As for surging housing prices: “The combination of rising wages, increasing employment and mortgage rates hovering around 3% are cushioning the blow,” Teta says.
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Is Owning A Home Right For You
If you feel the time is right to start shopping for a home, theres a lot to get organized. From managing your finances to securing a mortgage that fits your budget, youll need to bring your A-game.
When buying a home, it’s important to have a homeowners insurance policy that helps to protect everything you’ve worked so hard for. You’ll find real comfort knowing that your home’s insured carefully.
Should You Lease Or Buy A Home
People generally have two options when it comes to where they live and ultimately call home. One is to rent a home that someone else owns and the other is to purchase a home to own themselves. While home ownership is said to be “the American Dream” that isn’t always the case, or the right option for everyone. There is no correct or incorrect choice when it comes to the decision of whether to rent or own a home. Because buying a home is an enormous investment for most people, it is important that people do not rush into a hasty decision. Instead, they will want to make a well thought out decision based on their personal circumstances.
Unsure if You Should Rent or Buy?
Use our rent or buy calculator to compare the monthly costs side by side.
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What The Bank Will Lend You
Regardless of how big of a mortgage you think you can afford, the bank will only lend you a certain amount of money. You will need to make sure that your expectations are in line with your banks or credit unions lending guidelines. Banks will allow you to spend up to 32% of your income on your mortgage payment plus heating and taxes. This is called your Gross Debt Service Ratio . The other ceiling they set is called your Total Debt Service Ratio , and it cannot exceed 40% of your income. This means that all of your debt payments cannot exceed 40% of your gross household income. If your TDSR is anywhere near 40%, your mortgage payments will be a struggle for you. Again, you may qualify for a mortgage, but will you truly be able to afford it?
Are You Ready To Settle Down
If you need to move around for work, or you want the flexibility of being able to drop everything if offered the adventure of a lifetime, renting is usually the best option. Tenants can leave their homes within a few weeks or months and never worry about it again, unlike homeowners who must go through the lengthy and expensive process of selling, or they must let their homes. However, owning a home can provide greater peace of mind. You donât have to worry about your landlord suddenly selling up and booting you out, which can happen with very little notice. As long as you pay your mortgage every month, that house is yours. And when you own your home, your biggest monthly payment is paying off something that will eventually belong entirely to you and that can be passed onto your children.
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There Are Many Other Monthly Expenses That A Homeowner Must Pay
Assuming you can qualify for a home loan after coming in with a sufficient down payment, youve got more expenses to worry about than a renter.
As Ive said before, a mortgage payment is often expressed as PITI, which stands for principal, interest, taxes, and insurance.
That super low $1,012 is just the first half of the acronym, P& I. If you want an apples-to-apples comparison, be sure to include the T& I as well.
Using our same hypothetical $300,000 home purchase, weve got to add property taxes and homeowners insurance.
These costs are often paid out of an escrow account monthly, and thus increase your actual mortgage payment to the lender.
In California, you might pay around 1.25% in property taxes annually, or $3,750 per year. Broken down monthly, its about $312.50
With regard to insurance, you could pay anywhere from $1,000 to $3,500 annually, which is $50 to $300 a month in added costs.
Lets pretend its $125 per month, which together with the $312.50 pushes the monthly payment up to $1,450. Still cheaper than rent!