Making the decision between renting your home and buying is much more than simply comparing a mortgage payment with monthly rent. There are many cost advantages to home ownership that create longterm financial savings over renting. How do you know what’s best for you and your family? Using the Guaranteed Rate Rent Versus Own Calculator with LW Reedy’s Home Search, you can compare renting a specific property with purchasing another.
Beyond the lifestyle benefits of setting down roots for your family, the stability of knowing there is no lease to be renewed, and being able to make changes to your home without checking with a landlord, there are financial benefits to consider, including:
- Building equity. While home values decreased recently, historically, home values increase over time. While you’re paying off your mortgage, the value of your home is increasing, and your wealth is building.
- Saving on federal taxes. Currently, you can deduct your mortgage interest from your gross income when calculating your taxes.
- Budget stability. When you rent, you sign a new lease with your landlord each year, typically facing annual increases in your rent. With a fixed mortgage, your payment stays the same over the life of the loan, allowing for a more stable and predictable budget.
For some families, the benefits of renting outweigh the benefits of home ownership.
- Maintenance costs. When you rent, your landlord covers the cost of broken appliances, roof repair, etc. With homeownership, maintenance costs are your responsibility.
- Risk. While historically home values increase over time, there are periods, as experienced recently, when home values decrease for a period. If you have to move when the value is low, you can lose money on your home.
- Less flexibility. If you need to move frequently and with short notice, consider if you have the financial stability and support to manage the frequent buying and selling of homes.
Understanding the benefits of homeownership is one thing. Seeing the numbers makes it clear.
- Use LW Reedy’s Home Search to find your dream home and a comparable rental property.
- Use Guaranteed Rate’s Rent Versus Own Calculator to compare costs. The listing sheet, which you can get at LW Reedy at 101 N. York in Elmhurst, will tell you the property taxes for the home you are considering. For home insurance estimates, call your favorite insurance agent.
Now let’s consider an example created using the calculator. This house at 689 S Hillside in Elmhurst in the Lincoln Elementary School district is currently listed for $293,900. A similar rental property at 715 Saylor Avenue, in the same school district, recently rented for $1600 a month. Using Guaranteed Rate’s Mortgage Calculator and assuming an FHA loan with a down payment of 3.5%, we learn that you will save $40,694 over a 7-year period of ownership.
For another example, consider this home at 870 S Hawthorne Avenue in the Jackson Elementary School district listing for $325,000 and a similar home in the same school district at 950 Bryan St that recently rented for $1900 a month. With the same down payment assumptions, the rent-versus-loan calculator tells us that you will save $45,616 over a 7-year period of ownership by owning over renting.
Considering these cost savings along with benefits of stable monthly payments, setting down roots for your family, and exerting control over your living space, ownership is the best bet for most families. Managing these calculations can be complicated. To walk through the numbers, contact our friend CJ Poloucek at Guaranteed Rate. To compare two properties, check with your favorite agent at LW Reedy.