from renters.
Many renters say they just wouldn't feel comfortable having a mortgage. Well, to that I say... you are already paying a mortgage! You are paying someone else's... your landlord. They are reaping the benefit of interest right-offs (tax benefits) and equity appreciation. Wouldn't you prefer that to be you? The 5% Rule - There is a simple calculation many experts tout to determine whether renting or buying makes more sense economically. It is called the 5% rule. They state that if you take 5% of the price of a home and divide that number by 12 you end up with an average monthly payment that should cover the cost of payments, taxes, maintenance, etc. If the rents in the area are more expensive than that end number, it may be cheaper to buy a home. If the rents are less than that number, it may be cheaper to rent. Take a $300,000 home. 5% of that equals $15,000. Divide that by 12 and you end up with $1,250.00. If you can rent a similar home for less than that number then it may be better to rent. At the time of writing this section, a 300K home in our area of Northern Illinois Suburbs would typically rent for approximately $2,500 per month or possibly even more. Based on the 5% rule it would be better to purchase a home. Of course, this is subject to whether a person has sufficient down payment, credit, income, time to maintain, etc. to afford the purchase. What will be the duration of your stay in the home? Each market is different, but whether the time you plan to spend in the house warrants its purchase, is impossible to predict. In general terms, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and cost of ownership). If you’re thinking about buying a home and selling it in two years, buying is very unlikely to be cheaper than renting.
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