Buying a home is a big financial investment – perhaps the biggest one you'll make in your life. Be sure to do your homework and carefully evaluate how you want to live and how much you can comfortably afford.

Homeownership can be very rewarding if you are properly prepared, know what to expect, and make informed financial decisions.

Is buying a home right for you? It may make sense if you:

  • Have reliable income, good credit, and documentation to verify your savings.
  • Can afford at least a 3% down payment and related closing cost
  • Want a chance to build equity and be eligible for homeowner tax breaks and credits.
  • Have the time and money required for home maintenance and improvement projects.
  • Have an adequate cash reserve to withstand a loss of job, illness, or other financial setback.
  • Are planning on staying in your home for at least five years.

THE SCENARIOS

RENTAL SCENARIOHOME­OWNERSHIP SCENARIO*
Monthly rent = $1,400
Monthly renter's insurance = $10
Annual rent increase = 3.6%

Purchase price = $200,000 
Down payment = 5% ($10,000) 
Annual property tax = $2,000 
Annual homeowners insurance = $500 
Annual home maintenance = $2,000 
Mortgage rate = 4.5%

* These inputs will result in a monthly mortgage payment around $1,400 when factoring in PMI

The Outcome

With this scenario, Sally and Darren will save $92,216 by buying instead of renting over a seven year period. If they stay in their home for 15 years, they will save $273,558. Over 30 years, they’ll save $887,450.

Armed with this knowledge, Sally and Darren are better prepared to answer the rent vs. buy question.

  KEY TAKEAWAYS

  1. Homeownership is a long-term financial commitment

  2. Long-term, Sally and Darren would benefit financially from homeownership

 

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