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November 05, 2014

The $1.5 M Question: Rent vs. Buy?

Homeownership

Rent vs. Buying

Does it make better financial sense for Mike and Jen to rent or buy given their current $1,400 rent payment? How much home can they buy knowing they can afford a $1,400 monthly mortgage payment and can put 5% down at today's rates?

Let's find out using our new calculators with the following criteria:

Mike and Jen's Current Rental Scenario Mike and Jen's Potential Homeownership Scenario
  • Monthly rent = $1,400
  • Monthly renter’s insurance = $10
  • Annual rent increase = 7%

*These inputs will result in a monthly mortgage payment around $1,400

  • Purchase price = $200,000
  • Down payment = 5% ($10,000)
  • Annual property tax = $2,000
  • Annual homeowners insurance = $500
  • Annual home maintenance = $2,000
  • Mortgage rate = 4.5%

 

We've also put in other assumptions and costs for Mike and Jen, including: a 3% home appreciation rate, a $1,500 origination charge, $1,000 for settlement services, 3% for selling costs, a 33.8% state and federal tax rate, and a savings rate of zero.

You ready? With this scenario, Mike and Jen will save $106,513 by buying instead of renting over a seven year period. If they stay in their home for 15 years, they will save $369,155. Thirty years? $1,592,717.

These figures include costs for Primary Mortgage Insurance (known as PMI) that they will have to pay until they reach a 20% loan to value ratio.

Check out our 15 new calculators that do the math for you, including our Rent vs. Buy calculator. Easy as pie.

Please note that our calculators are provided for guidance only. For specific calculations, please work directly with your lender.

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