So, before you decide to sign that lease, consider these points:
1. Rent usually goes up. If you have a fixed-rate mortgage, your payment will be the same for 30 years – or 15 years, if you can manage a 15-year mortgage. At the end of that time, you will have no house payments whatsoever.
2. A home is an investment. When you pay rent, you are putting money in someone else’s pocket. When you pay a mortgage, part of that money is being invested in your property. In a sense, as you pay off your mortgage, you are being forced to save. Eventually you will own your home free and clear.
3. A lease is short-term. If you have a one- or two-year lease, at the end of the lease, your landlord can decide to no longer rent the property. If you own a home, you can live there as long as you like (if you pay the mortgage and taxes).
4. You will pay less income tax. The interest you pay on your mortgage and the dollar amount of your real estate taxes are tax deductible on your federal and state income tax returns. The tax savings lowers your cost of ownership. On the other hand, rent is not tax deductible.
5. Real estate tends to increase in value. This fact is difficult to believe if you only consider the last four or five years, but in the long run real estate prices have done nothing but go up. Historically home prices have risen four to six percent annually.
6. You become part of a community. Homeowners tend to stay longer in their residences, put down roots, be more invested and involved in their communities.
7. You have more influence. Municipal officials, whether it is fair or not, tend to pay more attention to property owners than to renters.
8. You can plant a garden. With a home usually comes a little land – a place for a garden plot or a swing set.
9. You can paint the walls red. When you own your home, YOU are the landlord. You can paint, decorate and create a home that is a reflection of your personality and lifestyle. (By the way, “Red Gumball” from Pittsburgh Paint’s Fallingwater Collection is a great red paint choice. . .)
10. Mortgage rates are at historic lows. Today offers a once-in-a-lifetime opportunity to lock in interest rates that are lower than they have ever been in our lifetimes.
According to Trulia’s chief economist Jed Kolko, across the United States owning a home now averages 44 PERCENT less expensive than renting. Moreover, owning is cheaper than renting in all of America’s 100 largest metropolitan areas, but particularly in the Midwest. Kolko arrived at this conclusion using these assumptions: a fixed-rate 30-year mortgage, a down payment of 20 percent, a 3.5 percent interest rate, a 25 percent income tax bracket, a taxpayer who itemizes deductions, an owner who stays in the home for at least seven years.
Of course, as one changes Kolko’s assumptions, the picture does change.
As mortgage rates rise, the cost difference between being a renter or a homeowner goes down. For example, at an interest rate of 4.5 percent, the average cost difference between owning and renting falls to 39 percent.
If the homeowners do not itemize deductions on their income tax, the difference between owning and renting drops from the 44 percent average to 35 percent.
If a buyer stays in the house for less than seven years, the 44 percent average also declines. It goes to 37 percent for five years and 20 percent for three years.
At Newport Cove, our waterfront community on the Chain O’ Lakes, we are offering a rent-to-own option for those who have the income but – because of the recent recession – are unable to presently qualify for a loan. Call 847.726.2727 to talk to us about this program!