By Craig Waterworth
Buying a home can seem like a massive financial commitment, but the truth is, buying instead of renting can save you tens of thousands of dollars in the long run. While renting has its perks, it’s our mission to show each and every one of you that homeownership is attainable — and one of the smartest financial decisions you can make.
Not convinced? Keep reading for a clear explanation of how buying a home is cheaper than renting one (or watch this Ruckart Real Estate video for a quick breakdown).
Buying vs. renting a home
When it comes to rent prices, most folks we meet are paying around $1500-$1600 a month before utilities. Now let’s compare that to a home with a purchase price of $250,000. You’ll likely need a mortgage to buy a home — for this example, we’ll go for a 30-year mortgage at a 4% interest rate. (For the record, at the time of writing this post, mortgage interest rates in Virginia are under 3%, and you can save even more by going with a 20- or 15-year mortgage.)
How much do you need for a down payment?
Now let’s talk about a down payment. This is the thing that scares a lot of people away from buying a home because they think they have to put 20% down. We have good news for you: Down payments come in all shapes and sizes. Today, we’ll use a 5% down payment for our example, or $12,500.
Calculating your monthly mortgage payment
Your monthly mortgage payment can be broken down into four categories:
- Principal: $341.33
- Interest: $791.67
- Property Taxes: $208.33
- Home Insurance: $70.83
That comes to a total monthly mortgage payment of $1,413. You don’t have to be a math wiz to see that’s less than a $1,500 rental payment. But this isn’t just about saving a few dollars each month — it’s about building wealth!
Factoring in annual appreciation
Annual appreciation is the amount of money that your home gains in value every year. Currently, the average rate of annual appreciation is 3-5% nationally. Now, it’s unlikely that you’ll be in your home for 30 years — most people only stay for five. So let’s plug in these percentages to our example with that thought in mind.
With a purchase price of $250,000 and a down payment of $12,500, we’re looking at a $237,500 loan amount. After five years, your total loan amount will be reduced to $217,000. But using a conservative 3% appreciation, your home will be worth $287,500. That means that in five years, your wealth has grown from $12,500 (your down payment amount) to $70,500 in total equity.
And if you’d opted to continue renting over that five-year stretch rather than buying a home? You would have spent $90,000 in rent.
Don’t wait to buy real estate — buy real estate and wait
The difference between spending $90,000 and earning over $70,000 is the big picture. That’s why homeownership is an excellent way to build wealth over time. It’s not complicated to build this kind of equity, but it does take some courage. To begin, all you have to do is purchase your first house — and our team is standing by to make that process as simple and straightforward as possible. Get in touch with Ruckart Real Estate today to stop renting and start building your own wealth through homeownership.