Rent vs. Buy

14 01 2011

Are you paying a mortgage payment in rent?

Take a minute to weight your options.

In Charles County Maryland a detached home, with three bedrooms and two bathrooms, rents for between $14-1900.00 a month. The average sales price is $290,000.00 for the same basic stats.

Lets say you bought one of those homes for $290,000. You chose a 30 year mortgage and your annual interest rate was 5% (rates change all the time but 5% if pretty high right now. You should be able to get lower.)

Your monthly principle and interest payment is going to be around $1500.00 a month.

So you tell me. Are you paying a mortgage payment in rent?

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3 responses

14 01 2011
Heather

It is always interesting to see what a mortgage payment would be vs. rent. Of course your example does not include property taxes and PMI which up the monthly mortgage payment. It also doesn’t include maintenance that could be covered by the homeowner if you rent and homeowner’s insurance for renters being lower than for homeowners. On the other hand, most people sell their homes for more than they paid for them (current housing crisis aside).

When the cost of renting vs. buying is close like it is here, it’s a harder decision to make. When we lived in Lexington Park late 90s/early 00s, it was an easy decision to buy. Mortgage including taxes, insurance, etc.: $604. Average rent for the identical house: $1200. No brainer. We bought the house. Similar situation in northern VA except in reverse. Rent for 3 br/1 full + 2 half baths townhouse: $1375 (average for the neighborhood was slightly higher, around $1450). Mortgage including taxes, insurance, etc. based on townhouse sales in our neighborhood: $2000-2400. Again, no brainer. We rented.

It’s definitely not so cut and dried here.

14 01 2011
Liz Benitez

Yes I did only give the P&I. I used really basic number just to make a point. The $290,00 is the average between $59,900 and $3,500,000. Which is the low and high of the 173 three bedroom, two bathroom, detached homes for sale in Charles County at the moment. The 5% interest rate was high as well. So even if we include all the other factors I bet I could still find a place in the current market that will still get you below or around the renting prices ;-D all you have to do is call me.

16 01 2011
Dave Kinkade

Heather, another factor to consider is that the price of rent has been held somewhat artificially low over the past decade. This is due, in part, to investors who bought a home to hold for a few years, knowing they were going to be upside down but assumed they were going to sell for a large profit. Those investors are fleeing the market in droves. Fewer people have the creditworthiness to purchase now as well as very tight lending guidelines. This forces ever increasing numbers of people to have to rent. That means this year’s rent price is going to be higher next year. I can almost guarantee it. If you base the numbers strictly on today you might be better off but I would encourage anyone who has the ability to do so to lock in now. The interest rates of the late seventies and early eighties are going to be coming back. If you can get a home at a steep discount and a fixed rate mortgage of 5% it will be worth more than most people realize. The economy and the low prices for commodities we have enjoyed are about to change for the worse. Good luck and I hope you make the best choice for your family.

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