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Finance
TOOLS
Rent vs. Buy example:
The actual monthly "out of pocket" costs are: $1139 for the mortgage payment (principal and interest) + $333 for taxes + $250 for insurance + $100 for PMI insurance. This totals $1822 per month. Their monthly net cost of home ownership (after tax deductions) is $1730.
You can use this above example to determine if it makes sense for you to buy vs. rent. If you are paying $2000 per month rent it may initially look like a "no brainer" to purchase a home. However, it is not that easy. One important point to consider when deliberating whether to buy or rent is the length of time you are planning on staying in the home or rental unit. If you know that you are only going to be in a certain area for 2 years it may make more financial sense to rent instead of buy. The reason for this is because any monthly savings accumulated as a result of buying may not be as much as the selling expenses that you may incur when you sell. Rule-of-Thumb: Closing cost expenses (when you sell) will amount to 10% of the selling price. Thus, in the above example, if you bought a home instead of paying $2000 in rent you would have saved $270 ($2000 - $1,730) per month. Keeping the home for 2 years would have saved you a total of $6,480 ($270 * 24). However, if your total closing cost would have amounted to $20,000 (remember that you will have closing costs both when you buy and sell) it would not have been a good decision to buy instead of rent. In most cases, your home is not going to appreciate enough in those 2 years to make up the difference.
Their monthly net cost of home ownership is $1,730.
You can use this above example to determine if it makes sense for you to buy vs. rent. If you are paying $2000 per month rent it may initially look like a “no brainer” to purchase a home. However, it is not that easy. One important point to consider
when deliberating whether to buy or rent is the length of time you are planning on staying in the home or rental unit. If you know that you are only going to be in a certain area for 2 years it may make more financial sense to rent instead of buy.
The reason for this is because any monthly savings accumulated as a result of buying may not be as much as the selling expenses that you may incur when you sell. Rule-of-Thumb - Closing cost expenses (when you sell) will amount to 10% of the selling price.
Thus in the above example if you bought a home instead of paying $2000 in rent you would have saved $270 ($2000 - $1,730) per month. Keeping the home for 2 years would have saved you a total of $6,480 ($270 * 24). However, if your total closing cost would
have amounted to $20,000 (remember that you will have closing cost both when you buy and sell) then it would not have been a good decision to buy instead of rent. In most cases your home is not going to appreciate enough in those 2 years to make up the difference.
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