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.
You Have Continual Access To Funds
There are two ways you can take out a home equity loan. The first is a fixed loan which you receive your money in one lump sum and the other is a line of credit, which works like a credit card. When you have continual access to funds, you never truly pay down the principal until the draw period is over. For most home equity loans, this means that you can draw funds for the first ten years. Technically speaking, you are not required to make any principal payments during this time. This leaves the lender without that money for a long period of time. After the initial ten years are over, the lender requires you to make principal payments over a 10 to 15 year period.
Rent More Expensive Than Paying A Mortgage
Low availability of rental properties is clearly a major issue
It is now cheaper to pay a mortgage than pay rent in all areas for starter and family homes, new research has found.
The Daft.ie rent report records that rents nationwide rose by 1.5pc in the first quarter of the year and the average is now listed at 1,366. In Dublin, the average price is much higher at 2,002 – an increase of 6.8pc within the year.
The number of homes available to rent across the country is at the lowest ever level since the series began in 2006 – at just 2,700 homes. As a result, with tight supply, listed rents rose again in all 54 markets covered by the report.
Daft.ie also carried out an analysis on whether it was cheaper to rent or buy – using a standard 30-year mortgage, with 85pc loan-to-value and on a rate of 3.5pc variable mortgage on average house prices in each region.
It found for a one-bed apartment or a two-bed and three-bed house, it was cheaper to pay a mortgage than it was to rent in all areas of the country – even allowing for a 2pc increase in interest rates.
In north Co Dublin, for example, a one-bed apartment might cost 618 per month in mortgage repayments – but this area is clocking up average rents of 1,247 for the same type of property.
In Dublin 16, a mortgage on a three-bed home might cost 1,598, but renting the same type of house would cost an average of 1,919.
The statistics are based on properties advertised on Daft.ie for a given period.
You Dont Plan To Live There
When you live in a property youve mortgaged, youre less likely to up and abandon ship when the going gets tough. In most situations, youd probably do all you could to make those mortgage payments and avoid losing your house.
With an investment property, you dont have as much of a personal stake. Sure, you want to make money off the home, but your physical safety and security doesnt depend on it. This makes you more likely to bail on the home — and its attached mortgage — when finances are tight .
Because of this, lenders are usually more cautious when financing a property youre not planning to live in, and that shakes out to a higher interest rate and stricter qualifying requirements.
A little pro tip here: If you want to finance a duplex or triplex and actually live on the property, you might be able to get some sweet deals on your loan. FHA loans are available for these types of purchases and only require a 3.5% down payment.
Why Is Rent Be Higher Than The Cost Of A Mortgage
Commenters in this Reddit thread put it best: Your rent is the most youll ever pay each month. Whereas your mortgage is the least youll ever pay each month. Why would that be so? Well, homeowners have to cover the cost of expenses that a renter wont have to pay, at least not directly:
- Property taxes: $2,471 each year, on average
- Monthly HOA fees: $250 per month, on average
- Repairs and maintenance: $170 per month, on average
- Homeowners insurance: $80 per month, on average
- Utility bills: $200 per month, on average
- Private mortgage insurance: $160 per month, on average
- Lender-required flood insurance: $61 per month, on average
Other possible charges can include: trash pickup, water and sewer service, pest control, tree trimming, amenity maintenance, and earthquake insurance. Landlords still pay these costs, of course, but a lot of them are baked into the cost of rent.
Of course, as any jaded renter knows, you can get stuck with a cash-poor or otherwise cheap landlord who skimps out on repairs and pest control. Nevertheless, the costs are real, and theyre on top of what an owner pays in mortgage payments .
That all said, pity is not requiredhomes are also assets that tend to grow in value, often above 10% annually, so they are quite valuable even given the ongoing costs of owning them.
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The Lowest Mortgage Rates Are Offered On Home Purchase Loans
The reason boils down to DATA. Despite the fact that the actual loan characteristics would indicate the lowest default rates on rate and term refinances, it is purchase loans that perform the best.
One possible reason why is because of faulty appraisals on refinances, which perhaps overvalue properties.
Regardless, purchase mortgages default the least, followed by rate and term refinances, and finally cash out refinances, the last of which actually makes sense.
Interestingly, the loan characteristics also indicate that cash out refis and purchase mortgages should default at about the same rate, yet they are priced the furthest apart.
And again, thats because in real life, not expected default rates, purchase loans default the least and cash out refis default the most.
Lowest: Home purchase ratesSlightly Higher: Rate and term refinance ratesHighest: Cash out refinance rates
So when you compare mortgage lenders, you might often find that purchase rates are the cheapest, followed by rate and term refi rates, and finally cash out mortgage rates.
Theres no question cash out refinances cost the most this is the norm amongst all banks and lenders to my knowledge.
But not all banks/lenders offer different rates for purchases and rate and term refis.
Now Lets Add Some Utilities And Maintenance To The Equation
Renting is pretty awesome in that you arent responsible for much more than your own personal belongings.
Everything inside the unit thats bolted down is mostly the landlords problem, assuming it breaks.
For example, the landlord is on the hook if the fridge or washer/dryer malfunction, or if the HVAC system fails.
The renter simply calls the landlord and tells them it need to be fixed, on their dime.
If youre the homeowner, these problems become yours, and you better believe there will be something, each and every year.
As such, you should generally earmark a couple hundred bucks a month for potential repairs and maintenance. It could in fact be a lot more than that, but at least start there.
Then there are the monthly utilities, which may have been paid by your landlord, or perhaps baked into the rent.
As a homeowner, youre now paying for trash, water, sewer, etc. out of your own pocket each month.
Lets add another $250 a month in utilities to the mix, along with the $200 in repair/maintenance.
Were now up to $1,900 a month all in for your house, a far cry from the $1,012 you may have seen advertised.
Its nearly double the original estimated payment you saw, which made homeownership look so enticing.
And remember, that monthly payment requires a hefty $60,000 down payment. If you dont have that, expect an even higher monthly outlay, and possibly mortgage insurance as well.
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Cost Of Homeownership In Numbers
*Assuming costs continue to rise in line with the 2018 inflation rate of 1.9 percent
**Average household size in 2018 was very close to 2.5 people, according to the U.S. Census Bureau. So this is the per capita average property tax charge nationwide x 2.5
*** Only payable by those who buy in a covenanted community
**** Were assuming you have a Fannie/Freddie mortgage and will stop paying PMI in month 103
Do You Have Enough For A Deposit
You need to save a deposit to get most mortgages, which is the amount you pay towards the purchase yourself.
It is shown as a percentage of the property’s value, and you usually need at least 5%. This would come to £10,000 on a home worth £200,000.
You can get some mortgages that need no deposit, but you usually need a family member to agree to cover any payments you miss.
If you still cannot afford a deposit, here is how to save up for one.
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Appreciation Benefits Including Leverage Of Cash Invested
Owning a home is an investment many people can understand better than buying stocks, because they get the tangible daily lifestyle benefit of living in the home. But the financial benefits are also significant, and can be more substantial than stock investing. As a home appreciates, it accrues faster than a stock might because you get the appreciation on the entire homes value, not just the gain your down payment cash invested.
For example, if you bought $30,000 in stock and it appreciated 3 percent per year for three years, youve gained $2,782 on top of your $30,000 invested and if you sold, youd pay taxes on that money gained. If you buy a $300,000 primary residence with a $30,000 down payment and it appreciated 3 percent per year for three years, youve gained $27,818 on top of your $30,000 invested and if you sold, youd be exempt from paying any taxes on that money gained.
What Are The Advantages Of Buying A Home
There are several advantages to owning your property:
Your monthly repayments will go towards buying your home, not into a landlord’s pocket
You fully own your home at the end of the mortgage’s term
You could make a profit if house prices rise
You dont need anyones permission to have pets or redecorate
Any maintenance or changes you make to your house could increase its value
You cant be forced to move by a landlord
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Home Purchase Mortgages Default The Least
There are three main types of mortgages, including home purchase loans, rate and term refinances, and cash out refinances.
The first is self-explanatory and was already explained above, the second is simply redoing your current mortgage by obtaining a new interest rate and loan term, without changing the loan amount.
The third type results in a larger loan amount at closing because youre pulling equity from your home, which a layman should assume would be the riskiest transaction.
After all, if a borrower now owes more debt, and maybe even has a higher monthly mortgage payment as a result, their default risk should rise.
This in theory should result in a higher mortgage rate to compensate for increased risk. And guess what that is indeed the case. Cash out refinance rates are the highest, all else being equal, for basically all banks and lenders.
At least something makes sense around here
Why You Should Rent Instead Of Buy
While buying a home can involve some serious saving and commitment, renting can help you maintain your flexibility and lifestyle. With renting, youre not tied to the property long-term, and youre also less responsible for saving for repairs, paying for taxes and insurance, and keeping up with other expenses.
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Is It Worth Buying A House
If youre still weighing up your options, ask yourself these questions:
- Where do you see yourself in two years time? If you want a flexible lifestyle to work in different places and travel for extended periods then it might be a good idea to wait to buy.
- What makes you happy in life? Do you prize security over everything, or do you dislike being tied down?
- Are you likely to inherit property later in life? If so, can home ownership wait while you put money into a pension, savings or invest?
- Do you want to buy a home just because you think property prices will go up? If the answer is yes, its probably not a good idea to buy because there are no guarantees that prices will rise.
- Will you be able to afford the maintenance costs if something needs repairing?
- How much disposable income would you have after paying mortgage repayments and other bills? Make sure you feel comfortable.
- If not, investing or paying into a pension while renting might be the best bet idea until you have moved up the career ladder or saved a bigger deposit.
- Do you know about the government schemes to help people buy properties? Make sure you know the support thats available to you which we outline here.
If you are wondering whether now is the right time to buy a house, with prices rising so quickly, check out our article here.
Surprise Paying A Mortgage Is Cheaper Than Renting In 42 States
People expect renting a home to be less expensive than owning. But it’s cheaper to own in 42 states.
- PAUL KATZEFF
- 05:00 AM ET 08/10/2016
Many people believe that renting is less expensive than owning a house. But it turns out it’s actually cheaper to pay a monthly mortgage than rent in 42 states. Renting is a better bargain financially in just eight states plus the District of Columbia, according to the personal finance website GOBankingRates.com.
Check out a state-by-state comparison below. It’s fun to see which is cheaper in your state. It’s even more fun to learn some tips for reducing your home purchase costs.
One reason homeownership is competitive is because mortgage interest rates are still historically low, Kristen Bonner, the study’s lead researcher, says in a web report. The average U.S. 30-year fixed mortgage rate is 3.56%, according to another site, Bankrate.com.
A key roadblock to buying a home is the inability of many would-be buyers to afford the down payment, which is typically 20% of the purchase price.
IBD’S TAKE:An IBD report explains that 39% of renters, especially younger ones, can’t afford to purchase a home because they are struggling with debt.
If the size of a down payment is a stumbling block for you, you may be able to reduce the size of the down payment. Just remember, with a down payment of less than 5% of purchase price, you’ve typically got to take on mortgage insurance, which boosts the size of your monthly mortgage payments.
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Top Australian Suburbs Where Its Cheaper To Buy Than Rent
There are more than 3400 suburbs across Australia where you fork out more for rent than a mortgage, with a difference of up to $158 a week.
More than a third of properties across Australia are cheaper to buy than rent with over 3400 suburbs offering a better deal with a mortgage, a new report has found.
CoreLogic found servicing a mortgage is now cheaper than paying rent on 36 per cent of Australian properties, which is higher than the pre-covid proportion of 33 per cent, which is attributed to record low interest rates.
Regional parts of Australia were particularly ripe for a cheaper deal with 60 per cent of properties offering savings when paying off a mortgage, compared to around one-quarter of homes in capital cities.
Regional Queensland offered some of the best opportunities for buyers, with more than nine in 10 homes in Townsville cheaper to buy than rent, more than eight in 10 in Cairns and almost eight in 10 in Toowoomba.
The Northern Territory offered the biggest difference between renting and buying. A mortgage in Darwin set people back a median of $389 a week, compared to a median rent of $548, a gap of $158.
For the rest of the NT, weekly mortgage payments were $344, a drop of $142, with renting sitting at a median of $487.
For Western Australia, it was $114 cheaper to rent with a mortgage costing $301 far below the weekly rent of $416.
Bleak outlook in some cities
How Much More It Costs To Own Vs Rent In Your State
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Owning a home is often considered the American dream and its an expensive one. Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis.
But many homeowners reap benefits that you can’t get from renting, such as financial security and stability, tax deductions and a vehicle for retirement savings. With each mortgage payment, you get closer to fully owning the home. The equity you build can be leveraged for loans like cash-out refinances, home equity loans and lines of credit that can be used to improve the home and boost its value or be used in financial emergencies.
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