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Buying vs. Renting a Home

Tough Stuff: Buy vs. Rent

If home ownership is a personal goal for you, then you and I have something in common! I'm excited for the day that I have a home sweet home, and I am constantly thinking about what it will take financially to get there. Here are some questions we should all ask ourselves and steps we should take in deciding to take the leap from renters to owners.

  • How long would you plan to live in your new home? The general consensus is that if the answer is three years or fewer, keep your renter identity until you're ready to settle in a bit longer. It takes some time to break even on the closing expenses.
  • Are you ready to give up the flexibility of renting? When my washing machine broke a few months ago, it was replaced with a new one free of charge. You will have higher maintenance fees when you own a home.
  • How much do I need to save for a down payment and closing costs? If you put a minimal down payment, you may need to get private mortgage insurance until you have sufficient equity in the home. Closing expenses generally range from three to eight percent of the house price, depending on various factors.
  • Will I have enough money each month to pay the mortgage, insurance, maintenance costs, and property taxes? Suze Orman wrote about an exercise that I think is worthwhile. She noted that, on average, you need to add another 40 to 45 percent to your monthly mortgage payment to get a more accurate total monthly cost. Assuming that your mortgage payment is similar in cost to your rent, open up a savings account and deposit the equivalent of the 40 to 45 percent to get an idea if you could handle the extra expenses.

Using a buy vs. rent calculator can be a helpful when figuring out if you should rent or buy your abode.

For informational purposes only. Consult your financial adviser regarding the benefits of buying or renting. Total Deposits at Washington Mutual are FDIC insured. Thank you to WaMu for sponsoring this post.


Join The Conversation
freegracefrom freegracefrom 9 years
Another benefit of owning a house is that you can get some major tax incentives. I pay just as much as I would on my rent as I would on a mortgage, but I didn't get to claim it on my taxes! Granted, you have to take care of your own repairs... but at least you can make sure it's done right.
The-City-Girl The-City-Girl 9 years
The-City-Girl The-City-Girl 9 years
If anyone's looking for a place in SF, this is a good option: it's in a good area, has storage (rare in this city!), and most importantly, it has a formal dining room, which means that you really get a 2 bedroom for the price of a one-bedroom! So, you could have a roommate to help you with the mortgage. I also love its bay windows, hardwood floors, and beautifully-crafted period details, but at the same time has a brand-new kitchen! If I hadn't already bought, I'd be pouncing on this ;-) Okay, enough from me on this post, hehe.
The-City-Girl The-City-Girl 9 years
Ummm. . .I realize I came off a little 'ivory tower privileged' in my previous post, eek. I just want to note that BECAUSE my parents' rent is so low, they've been able to save up a lot, which then allowed them to really help me with the down payment. I do realize that I'm extraordinarily lucky in this way (but I will DEFINITELY be paying them back every cent)!! Like I said, it definitely depends on your situation, but if possible it seems that for long-term security, it's best to sacrifice a little bit in terms of extra money and square footage.
The-City-Girl The-City-Girl 9 years
I think it definitely depends on your situation. . .but for the large part it's much smarter to buy. For example, at this point it would be unwise for my parents to buy because they live in a gorgeous and huge Victorian (where I grew up!), for only $800 per month. It's so low because they've been there for over 30 years and it's rent-controlled (we're in San Francisco). BUT that same property without rent-control would going for about $4,500 (as seen elsewhere on their block) and therefore someone entering the market at this point, at these costs, would be wiser buying. Someone like me, for example! I have recently bought a 3 bedroom Victorian condo, and I'm so, so, so glad that I did becase not only did we get it for a STEAL in this city ($786,500), but rents are now so exorbitant here, that my monthly mortgage payment costs the SAME as the rents in my neighborhood!!! But instead of going to pay my landlord, I (together with my roommates, teehee), are paying off my home! So I would say that if you can, you should buy, especially now since rents are no longer priced comparatively lower (AND you should take advantage of the struggling house market! Just be ever so careful with those loans. . .).
freegracefrom freegracefrom 9 years
I'm in limbo myself, so renting makes the most sense. I'm not really that excited about getting my own place, because it does always seem to be so much more expensive to own than to buy.
Beauty Beauty 9 years
Like RosaDilla, I live in super-expensive San Francisco (in a rent-controlled apartment). I can't imagine ever being able to buy a place. I mean, the "affordable housing" apartments here still cost $450k... sigh.
RosaDilia RosaDilia 9 years
Right now I'm a single parent and live in NYC where the real estate market is ridiculously expensive. At this point I'm better off renting than buying cause I don't think I could ever afford a home in the city no matter how much money I save.
supercoolnat supercoolnat 9 years
It is sooo frustrating to keep renting, my husband and I want to own so bad. But it just doesn't make sense right now, since we'll probably be relocating in as little as 3-1/2 years, and it's hard to trust the real estate market right now. So we'll keep saving our butts off with a goal of buying as soon as we get to our "permanent" location.
Renees3 Renees3 9 years
My boyfriend and are thinking about buying. We were looking around at homes in our area and are paying more in rent than we would be if we bought. Which is kind of ridiculous. We plan on being here for a few years and I want to settle down soon.
fashionhore fashionhore 9 years
My boyfriend and I aren't sure where we will end up in 5 years, so for right now we are putting in $50-$100 (dpending on how much we can afford that month) a month into a joint savings account so that when it comes time for us to buy a home, we will have a sufficient amount of money saved up for a down payment, repairs, closing costs, whatever is necessary. Yeah renting is like throwing away money, but it works best for some people who move often, don't need to settle down, and like the change of atmosphere. I can't wait to own my own home (it's one of my personal "before-30" goals), but right now is not the time for us.
imLissy imLissy 9 years
I'm currently saving for a house. It would be so nice to have the extra room, my own washer/dryer, a puppy. My boyfriend's family keeps telling us to buy a house ASAP b/c renting is like throwing away money. My family on the other hand thinks we shouldn't buy a house until we absolutely have to (like when we have kids) Maybe in another three years when I can afford a house I'll have decided by then...
subhuman-error subhuman-error 9 years
Going to try this!
lawchick lawchick 9 years
I love my house and being a home-owner, but... I probably bought it prematurely. I can afford the monthly note ($1000 incl insurance, taxes, etc) fine, but the never-ending repairs and upkeep are tough. My house is old, and probably in average condition. So far in 2008, I have paid $400 to have a leaky faucet fixed and ultimately replaced, and $600 to have a huge dead tree cut down and removed. It's worth it, for sure, but we won't be going on any vacations this year. All extra money goes straight into the house, which is not what I expected!
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