There are many facts to consider before answering this question. The biggest one being how long you plan on staying in the community. Experts advise if you plan on staying less than 7 years then purchasing might not be the best option. Renting versus buying is also a question about lifestyle. Renting provides mobility. Owning provides security.
There are several useful rent vs. buy calculators available online which allow you to input your personal data and review various scenarios. These calculators help you do more than simply compare a monthly mortgage versus rent payment. They take into account all costs involved in your decision.
Also, make sure your decision is not based on the numerous rent vs. own myths. A recent Trulia article (www.trulia.com), Chief Economist Jed Kolko dispelled some of the myths – around the rent vs. buy cost factors nationwide. These are the top two myths.
Myth: Rising home prices and mortgage rates make it more expensive to buy than to rent.
Fact: Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. But rising mortgage rates have narrowed the gap between the cost of buying and the cost of renting.
The 30-year fixed rate is now 4.80%, compared with 3.75% one year ago (according to the Mortgage Bankers Association, or MBA). This jump in rates has raised the cost of buying relative to renting. As a result, buying is 35% cheaper than renting today, versus being 45% cheaper than renting one year ago.
The key reason buying is still cheaper than renting is this: both rates and prices are rising from very low levels and are still below their long-term historical norms. But the rent versus buy math depends on your local market, as rising rates and prices have pushed a handful of metros very close to the tipping point when renting becomes cheaper.
Myth: The mortgage interest deduction is the only reason home ownership is more affordable than renting.
Fact: A key factor affecting the rent-versus-buy math is whether you itemize deductions on your income taxes and what tax bracket you’re in. If you itemize, you can deduct mortgage interest payments (not principal payments) and property tax payments from your income before calculating how much you owe in taxes. That said, only 33% of tax filers choose to itemize. Itemizing lowers the cost of buying relative to renting – especially if you pay taxes at a higher rate, because that means you’re deducting more.
But buying remains cheaper than renting almost everywhere even if you don’t itemize. Without itemizing – or if your tax situation means you get no benefit at all from itemizing – buying looks 22% cheaper than renting nationally.
Your local realtor can help you in your rent vs. buy decision by providing the costs associated with home ownership on a property you are considering.