The Cost of Waiting To Buy a Home
We’ve all heard the early bird gets the worm. You snooze, you lose, and many other cute sayings used to promote action. But this post could potentially save you thousands of dollars a year in opportunity cost you may be missing out on.
Let’s face it, buying a home could be an emotional roller coaster as it’s perhaps the biggest financial decision most people will ever make. That’s why it’s important to take a more pragmatic approach and let the numbers do the talking.
With rates rising and inventory increasing, people are trying to figure out the market and decide if they should buy a home or keep renting. But at what cost?
There are several approaches you can take, but for the sake of this post we’re going to explore the cost of renting versus buying.
How To Determine Your Price-to-Rent Ratio
According to the National Association of Realtors, here’s how to calculate the price-to-rent ratio in your area:
The price-to-rent ratio is calculated by dividing the median home price by the median yearly rent and the formula for the price-to-rent ratio is: Median Property Value/ (Monthly Rent x 12 months).
Let’s Run Sample Numbers for Stamford, CT
According to Zillow, the typical home value of homes in Stamford is $623,504. This value is seasonally adjusted and only includes the middle price tier of homes. Stamford home values have gone up 9.1% over the past year.
According to rent.com the average rent for a 3-bedroom apartment in Stamford, CT, is $4,350 at an average annual change of +24%.
This gives us a ratio of 623,504/52,200 or 11.94%
To Buy or Not to Buy – That is the Question
Trulia established thresholds for the ratios as follows: a price-to-rent ratio of 1 to 15 indicates it is much better to buy than rent; a price-to-rent ratio of 16 to 20 indicates it is typically better to rent than buy, and a price-to-rent ratio of 21 or more indicates it is much better to rent than buy.
So, in this scenario, right now it’s a better option to buy than to rent in Stamford, CT.
To find these numbers for your area, you can find the figures on websites like Zillow, RentCafe, the National Association of Realtors, local news media, or even government organizations.
That means if you are renting a home at $4,350 a month you are losing money. But how much exactly? Let’s break it down.
According to Zillow, a $625,000 home in Stamford, CT will cost approximately $3,876 including property taxes and insurance, if qualified.
That’s a possible overpayment of $474 per month or $5,688 per year. And let’s not forget the potential tax benefits of homeownership.
Tax Breaks You May Be Missing Out On
The IRS has many rules about the tax breaks available for homeowners which could include:
- Mortgage Interest
- Home Equity Loan Interest
- Discount Points
- Property Taxes
- Home Improvements
- Home Office Expenses
- Mortgage Insurance
- Capital Gains
When You’re Ready – We’re Ready to Work with You
At Embrace, we offer lots of different types of home loans. We’ll help you find the mortgage that fits your individual needs and goals. And whether it’s your first home loan or your sixth, we can guide you through every step of the process from application to closing.
Our wide array of lending choices includes, Conventional loans, FHA loans, Jumbo loans, USDA loans and VA loans.
Walk In with an Offer Almost as Good as Cash
In today’s super competitive marketplace we can help prevent losing your dream home to another homebuyer with our Approved to Move™ program. Unlike a typical pre-approval, Approved to Move™ is fully underwritten and verifies your information before you start house hunting.
Sellers love this innovative program because it’s virtually as good as a cash offer and all but guarantees a quick closing.
Whether you’re buying, lowering your monthly mortgage payment, or consolidating other debt, Embrace is here to help. We’ll provide you with the tools you need to better understand all your home loan options.