should I buy a home or rent?
Posted on Aug 14, 2007 by
Paul WhiteAnyone who is thinking about buying a house asks themself this question: Should I buy a home or rent? Its good to determine what your monthly costs would be with each scenario. A typical example for the Houston market might look like this...
A typical 1100 sqft apartment in midtown Houston; 2 bed, 2 bath, 2 parking spots in garage.
Rent: $1350 / month
Renters insurance $30 / month
Electric: $150 / month ( it gets hot in houston )
Water: $25 / month
Gas: $0 / month ( no service )
Auto insurance ( about $1500 / 6 months )
Benefits: 5-10 minutes from most
places we wanted to go, community pool, community internet cafe
Downfalls: Noisy, limited space, higher auto insurance rates
Total cost: $1805 / month
Typical Houston Home: $150K
2000 sqft, 3 bed, 2 bath 2 car garage
Mortgage: $800 / month
Home owners, and auto insurance: $360 / month
Taxes: $500 / month
Electric: $220 / month
Water: $80 / month
Natural Gas: $30 / month
Yard upkeep ( bugs, fertalize ) $10 / month
Benefits: Quiet, plenty of space, cheaper auto insurance rates.
Downfalls: Weekly yard upkeep consumers 6 hours a week., no pool, 40 minute commute from the burbs to downtown.
Total Cost: $2000 / month
As a general rule, when budgeting for a house, take your proposed mortgage payment x 2.5. If this is more than you can afford per month, keep renting. Also never get an ARM if you plan on making payments on the house beyond its term. So if you get a 3 year ARM, be sure you are either sell the house or have it paid off within 3 years. It is not wise to just assume you can refinance you home. If you have to get a second mortgage for the down payment you aren't ready for
home ownership. If you have investments ( stocks, mutual funds ) pull them out and use them to pay down the principal on your home. This will change the payments so each month you are building more equity, and paying less interest. Don't fool yourself by thinking you are going to double your money in your etrade account. The only certainty is you are going to be paying about 6% on the 150k you have taken out for your loan. Paying it down will always get you ahead. Once your house is paid off, then it is a good time to put time and energy into investments. If you are paying interest on anything (car, house, boat, etc) and think you will get rich on your 401K, you might want to do some more math.
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