Look At The Numbers When Comparing Renting Vs. Buying A Home

by Hank Coleman

There are a lot of hidden costs that are included in the total cost of owning a home. When you consider things such as insurance, maintenance, tax, PMI, and price, renting might be a much better option for some people. Everyone’s situation is different, and potential homeowners should seriously crunch the numbers when deciding about renting versus buying a new home.

Homeowners vs. Renters Insurance

Everyone’s housing situation is different based on the specifics of your home, amenities, location, etc. But, just to give you a comparison, my current homeowners insurance is approximately $600 per year or $50 per month that is wrapped up into my mortgage payment. When my wife and I were renting, our renters’ insurance was somewhere in the neighborhood of $20 per month or $240 per year for the same amount of coverage. The cost is less because the risk of losing the actual structure falls on the owner and not the renter. As a renter, you only need to cover the loss of your possessions.

Property Taxes

Depending on the state, county, and location you live in, property taxes can run the gamut of $100 per month up to thousands per month for the pricey zip codes around the country. Property taxes are generally a cost that renters do not have to worry about. Most property taxes are paid by the owner of the home and may even be wrapped up in their mortgage payments and escrow.

Home Maintenance

Many homeowners eat the cost of maintenance to their properties instead of passing that cost onto their tenants. Other landlords manage to pass those maintenance costs on to renters or raise the price of rent every few years. Typically, 10% of the cost of rent can be as good rule of thumb for maintenance costs. Along with these costs can also be the costs associated with lawn care and snow removal. These are all costs that the renter does not pay.

Private Mortgage Insurance

If you do not put down at least a 20% down payment on a home, most banks will require you to carry private mortgage insurance. This insurance protects the bank if you default on your loan. In the case of default, the insurance will cover the bank’s losses. Home buyers who do not put a 20% down payment into a home purchase are seen as higher risks than those who have a lot of equity and their own money tied up in their homes. PMI can cost around $100 per month or $1,200 per year. That is a significant cost that renters do not have to worry about. The only down payment a renter might be faced with is a security deposit which is considerably cheap when compared to the total cost of ownership and a deposit may also be returned when you leave the rental. A homeowner who stays in his or her house for several years could continue to rack up PMI fees that they will never get back until they build up 20% worth of equity or more.

Buying a home is not necessarily the best option for some people. There are a lot of costs associated with buying and maintaining a home. Many of these costs are hidden from a renter who is shielded from them because they are usually the responsibility of the owner. But, these hidden fees should be taken into consideration when you compare buying versus renting a home. While a renter is not building equity in a home like the owner, the potential savings of renting can be quite favorable.

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