Rent or buy, you be the judge
First of all, let me say that there is nothing wrong with renting and there are times when it's a better choice.
But the other day I viewed a home that was available for both rent and for sale. The offering price was $300,000 or $2400 per month. Actually, it seemed like a pretty good value to buy but it seemed a little high to rent.
So I took out my trusty mortgage calculator to see the difference in cost between renting and buying.
Since some people might not have a large down payment, I used an FHA minimum of 3.5 percent as the down payment or $10,500 and even though we are now seeing 30 year fixed 3.75 percent loans, I (generously) rounded it up to an equally amazing low rate of 4 percent. The monthly payment for principal and interest, $1382. Now you have to add in both taxes and insurance and for this example, I used a very realistic rate of 0.62 and 0.70 percent respectively which equals an additional $330 per month total.
One more cost that has to be factored is the cost of mortgage insurance which is required when the loan to value ratio is less than 20 percent and in this case, it is 115 basis points or $277 monthly.
Two additional costs have to be considered, homeowner association fees (HOA) and annual maintenance because quite simply, owning a home is a responsibility. Let's factor in another $300 annually for the HOA and a very generous 1 percent of the value of the home for maintenance or $3000 annually. That would add another $275 monthly.
Add everything together and you should budget $2264 monthly.
Compare that to $2400 for rent and approximately $50 monthly for renter's insurance and you can make the owners mortgage payment every month for $2450.
Now, if you happened to be able to have a larger down payment, you will be financing a much smaller amount and you can forget all about mortgage insurance. With a 20 percent down payment at 4 percent, principal and interest will be $1146 and using all the same numbers from above, you should budget $1751 monthly.
So you be the judge, should you rent or buy.