It’s Still Cheaper to Buy than Rent

Home prices have increased by over 30% since last year.  Feeding this increase were the low mortgage rates, lack of inventory and strong buyer demand.  With mortgage rates now above 5%, some people think that buying a house is too expensive.  While the cost of borrowing money has increased, buying a home is still a cheaper alternative to renting.  Let’s take a look at some numbers.

Doing a quick search for single-family homes for rent (for Hillsborough County), I found monthly rent prices ranging from $1950 to $6,500.  Let’s use a below-average rent of $2300 a month.

A 30-year mortgage, with a fixed rate of 5.25% for $416,000 would cost you $2300 a month.  However, if you buy a home, you also have taxes and insurance.  So, let’s figure that in.

If we assume taxes are about 2% of the purchase price, that would put the taxes at $8320 annually, or $693 a month.  On the conservative side, we can plan $300 a month for insurance.  So, each month one would pay $2300, $693 and $300, a total of $3293 per month.  Again, this is based on a loan of $416,000.

What if the loan is only $300,000?   The monthly mortgage/interest payment would be $1657, taxes would be $500 and again insurance at $300.  The total is $2457 (which is in line with the average rent now).

There are three main hurdles that buyers are facing right now: 1) qualifying for a loan – be sure to keep the credit score above 650, 2) having enough money for the down-payment and closing costs (you need to plan for about 9%), 3) presenting a strong enough offer in today’s competitive market.