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Chasing the American Dream. Should I Rent or Buy a Home?

If the proverbial “American Dream” includes a white picket fence and a roomy backyard for “Sparky” to run around in, those of us who do not yet own our own home have one question weighing on our minds. Is now the right time for me to bite the bullet and buy a home?

    If the…
  • Average American median household income is $51,017
  • Median sales price for homes in the U.S. $198,500 – March 2014
  • Nation’s average on property tax: 1.4%
  • Average American rent went up 0.8% to $1,083/month in January 2014
  • 15% of Americans are under the poverty level: $23,492 a year for a family of four

Get the Ball Rolling on Your Future

    If you’re not financially stable, now may not be the time to jump into a high-monthly mortgage.
  • Save for a down payment first.
  • The golden rule standard is 20% on a conventional loan.

    Helps keep your monthly payment down & lowers interest rate over the life of the loan.
  • To receive a “Qualified Mortgage,” you must meet the debt-to-income ratio of 43%.

Look Before You Leap

    Plan for maintenance and upkeep:
  • Lawn mower, dishwasher, hot water heater, water bill, etc.
  • Keep an eye on the mortgage rates:

  • Rates lock for duration of loan no matter how high they climb.
    5 – 30 year loan options, right now the avg. 30 year loan is 4.2%. Who knows what it will be next year?

Get Your Credit Score up

The higher your credit score is over 760, the more you will save on annual finance charges. Save upwards of $2,000 dollars per year the higher your score climbs.

Compare and Contrast Buying and Renting:

    What the default settings on the New York Times Mortgage Calculator will show you using US averages:
  • Buying and selling a house is better after 5 years.
  • Renting is better if you’re staying in the house for less than 5 years.
  • Monthly rent: $1,083
  • Home Price: $198,5000
  • Down Payment: $39,700 (20%)
  • Mortgage Rate: $777 (4.20%)
  • Annual Property Taxes: $1,779 (1.40%)
  • After 5 years, buying is better.
  • Average annual savings: $343
  • Unrealistic Default settings:
  • Annual Maintenance: 0.5%
  • Annual Renovation: 0.5%

This doesn’t take everything into account…

Consider Your Repair Costs:

The average American spends between 1-4% of their home’s value each year maintaining and repairing their home.
At 4% annual maintenance and renovation costs, buying is never better than renting for the average American even after 30 years.

  • Monthly rent: $1,083
  • Home Price: $198,5000
  • Down Payment: $39,700 (20%)
  • Mortgage Rate: $902 (4.20%)
  • Annual Property Taxes: $2,680 (1.40%)
  • Adjusted repair costs: 4.0%
  • After 30 years, renting is better
  • Average annual savings: $1,450

Don’t Overextend Yourself.

  • The average full time worker annually makes $65,596 before taxes.
  • Budget: Average annual American expenditures: = $51,442
  • Food, clothes, health care, and everything else makes up $34,555 of this
  • Housing costs makes up $16,887 of this

If you are prepared, buying a home is an excellent idea:

  • Invest in your future
  • Put money into your own pocket, not your landlord’s
  • Building equity safeguards your future
  • Amount of money you can sell your house for – What you owe on your house = Equity
  • Can help pay for large future expenses (E.G. college, retirement, etc.)
  • Tax break
  • Deduct mortgage interest
  • Deduct all property taxes
  • Have it your way
  • Be free from tyrannical landlords!