Should you rent or buy a home? Which is less expensive?

According to Ginnie Mae (Government Mortgage Association), if you begin with a rent payment that is less than a mortgage payment, you will notice after three years that by locking in a mortgage rate and enjoying the tax benefits from ownership, your mortgage payment will become less than what you were paying in rent, especially considering that rent tends to rise each year.

As we have witnessed over recent years, supply and demand caused values to rise at an alarming rate then to fall at an equally alarming rate. If you look at the history of homes over a period of ten or more years, you will see that despite these fluctuations, overall the value of the home rises over time.

Let’s look at an example. If you were to rent a 2 bedroom condo for $900 a month, but you could buy that condo for $1100 a month including taxes and insurance in your payment, it would take you about five and a half years for your rent payment to catch up to your mortgage, with rents were rising at an average of 5% per year. Over a ten year span- you would save almost $6,000 as a raw estimate.  Didn’t Ginnie Mae say they would equal out at about year 3? Why the difference?

In the savings calculated by Ginnie Mae, they have included the savings and deductions you receive on your yearly tax return from owning a home. Which are valid savings and when they are included in the total numbers, the savings do start around 3 1/5 years. You can view their numbers and interesting homeowner facts here. Another thing to consider is that in the Phoenix Real Estate Market, you may be able to get your mortgage payment lower than your current rent payment right from the beginning, saving you thousands over a 10 year span.

What would not be suggested however ,is buying primary residence if you don’t plan to keep for yourself or turn into a rental for at least 3 years because your upfront costs to home ownership don’t see much of a return until the value rises, your principle decreases, and the difference in rent goes up.

If you would like some help running the savings numbers that are specific to your situation, give James Wehner a call today. He can help you compare each scenario to see what will give you the greatest return on your investment!  480-323-5462

About the author

As a successful real estate investor and Realtor®, James Wehner’s focus is to assist buyers (investors, first time home-buyers, second home-buyers, relocation…etc) and help them find the best deal that matches their real estate needs.

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