To buy or not to buy – that is a several-thousand-dollar worth of question. Financial analysis is essential, but you can’t overlook emotions, family and personal reasons when taking a final decision. You may want to use a rent vs. buy calculator to know whether buying is a sensible decision. You may also want to use a payment calculator to know if you can actually afford to buy a home. Our question-based calculator help take the final decision.
Taking an Example
The other day I was checking a calculator that compares the rental value and the cost of buying a home to answer whether buying is better than renting. Taking a simple example, I found out that the rental value of a home priced $100,000 is at $357 that includes 1.32% of renter’s insurance and no broker’s fee.
The Details
The above calculation is based on a 30-year fixed-rate mortgage with an annual interest rate of 4.00%. It also assumes that the borrower is making 20% down payment, which can potentially generate revenue at 4.0% investment return rate. Assuming that your rent does not increase, you would be paying $28,520 over the present value of home in 30 years.
Using a mortgage calculator, I found out that the monthly payment on a $100,000 home with a 20% down payment is $520, keeping the interest rate, term, taxes, insurance and all other parameters the same as the rent vs. buy calculator.
Breaking down the payment, the borrower has to pay $382 for principal and interest, $100 in taxes and $38 on homeowner’s insurance. Over the term of the loan, you will be paying $187,200, about double the cost of the present value of home.
The Decision
What conclusion should I deduce? Obviously, buying is still more expensive than renting, but there may be a number of reasons why you may want to buy a property that you can call home. It is indeed a difficult decision to choose the path of homeownership.
Other Considerations
Even if you decide to be a homeowner, you are miles away from the dream of homeownership. Every person has a different need. You may want to consider a few questions before you can take a final decision to buy a home.
Living in other’s house is enough
The feeling to have your own home gets stronger as you move along your life. You may want to live a life that no one can interfere. You may want a home that reflects your personality. You can’t remodel a rented apartment or condo, but you are free to change your own home the way you want.
Rising Rent – No Way
With growing real estate market, the cost of buying a property is always on a rise, giving your landlord a reason to increase the rent. While a homeowner is happy with the rising value of a property, the renter has to pay a penalty in the form of a hike in monthly rentals. You may want to say no to rising rent.
I am looking for a permanent settlement
If only you have a permanent job, you will win half the battle. Rather than wasting your money on monthly rents, you can build something of you own at a little higher monthly cost. If you plan to live in your home for more than five years, then you are likely to leverage many advantages of renting.
Well, I can afford a home now
There can’t be any better situation. You only need to use a calculator to get a quick estimate of how much you can afford. There is a wide variety of lenders and mortgage options, so you are likely to obtain the needed home finance if you do not fall in the bad credit zone.