If Renting, You Can Afford to Buy a House

Rent is an expense, but what about mortgage payment? Mortgage builds equity and unlike rent that never ends, mortgage payments have
an end. So logically, you will be better of owning a home rather than renting one for the rest of your life. But the
question is, can you afford to buy a new home with the current rising cost of real estate?

The old rule of thumb says that you can own a house priced three times your gross annual income. This means that if you earn $100,000 per year, you can afford a $200,000 to $ 300,000 home. On average a person making that kind of money usually pays around $2,000 on rent. Assuming such person decides to go for a $250,000 house and can afford a $50,000 down payment, and holds a 5% fixed rate for 30 years; he will be paying monthly of around $1,400. In US a house valued at $ 250,000 typically cost around $ 2,000 to $ 2,750 on rent per month (0.8 to 1.1% of the home value). Assuming all factors like tax and home insurance remain constant, it means that buying will be cheaper than renting. The main struggle, of course, goes to the saving part for the down payment; however different lenders allow you to have only 5% of the mortgage value as the down payment, which means a little sacrifice on saving can potentially make you a homeowner.

What happens in the long run? Given that the rates right now are around to 4-5 % or so, experts predicts that it’s likely to increase soon; it’s worth considering that renting for 30 years can save you a chunk of money. However, considering all factors, it still makes financial sense to buy instead of buying.  It’s no doubt that if you can afford to rent, then you can afford to purchase a house, but renting has its advantages, among them, is flexibility. A young couple, for instance, may find it necessary to rent since they may want to move from one
place to another in course of their lifetime.

You will need at least 10% of the house value to get a mortgage, but the more you put towards the purchase price, the easier it will
be when it comes to paying off your mortgage.  So, if you have no lump sum to call on, not is the time to get saving. The recent introduction of property tax makes it hard to own a house nowadays, but all things considered, if you can rent today, you can own a home.

Sources

http://www.econedlink.org/lesson/162/Buying-vs-Renting

https://www.moneyadviceservice.org.uk/en/articles/how-much-can-you-afford-to-borrow

https://smartasset.com/mortgage/how-much-you-should-charge-for-rent