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Your income, savings, and
monthly expenses play an important role in determining how large a
mortgage you can afford. To figure out the amount you can afford.
Savings: Buying
In many cases, the amount of money a renter spends on rent can be about
the same as or less than the amount a homeowner spends on a mortgage.
With the tax benefit for homeowners, the savings can be significant.
Buy vs. Rent Comparison
The chart below shows a cost comparison for a renter and a homeowner
over a seven year period.
The renter starts out paying $800 per month with annual increases of 5%
The homeowner purchases a home for $110,000 and pays a monthly mortgage
of $1,000
After 6 years, the homeowner's payment is lower than the renter's
monthly payment
With the tax savings of homeownership, the homeowner's payment is less
than the rental payment after 3 years
|
Years |
Rent Payment |
Mortgage Payment |
Monthly Difference |
After Tax Savings |
Yearly Difference |
After Tax Savings |
|
1 |
800 |
1000 |
-200 |
-50 |
-2400 |
-600 |
|
2 |
840 |
1000 |
-160 |
-10 |
-1920 |
-120 |
|
3 |
882 |
1000 |
-118 |
+32 |
-1416 |
+384 |
|
4 |
926 |
1000 |
-74 |
+76 |
-888 |
+912 |
|
5 |
972 |
1000 |
-28 |
+122 |
-336 |
+1464 |
|
6 |
1021 |
1000 |
+21 |
+171 |
+252 |
+2052 |
|
7 |
1072 |
1000 |
+72 |
+222 |
+864 |
+2664 |
|
8-30 |
|
|
Savings increase every year |
Monthly Expenses: Buying
Your rental company takes part of your rent payment to cover certain
housing expenses. When you decide to purchase a home, you accept
responsibility for paying for these expenses (listed below). They are
additional costs to your monthly mortgage payment and should be included
in your budget estimates:
Property Taxes and Special Assessments
Home/Hazard Insurance
Utilities
Maintenance
Home Owner Association (HOA) Fee: Doesn't apply to all purchases. It
pays for trash and snow removal and maintenance of common grounds if
applicable.
Membership Fee: It may pay for recreational facilities and other
services (cable TV).
Buy vs. Rent Comparison Chart :
|
|
Advantages |
Considerations |
|
Buy |
Property builds equity |
Responsible for maintenance |
|
Sense of community, stability, and security |
Responsible for property taxes |
|
Free to change decor and landscaping |
Possibility of foreclosure and loss of equity |
|
Not dependent on landlord to maintain property |
Less mobility than renting |
|
|
|
Rent |
Little or no responsibility for maintenance |
No tax benefits |
|
Easier to move |
No equity is built up |
|
|
No control over rent increases |
|
|
Possibility of eviction |
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