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2014-11-05 12:06:58
Buying a Home 38% Cheaper Than Renting, But Down P

Buying a Home 38% Cheaper Than Renting, But Down Payment is Still Big Obstacle


Across the nation, buying a home is 38 percent cheaper than renting, compared with 35 percent a year ago, says the real estate site Trulia.

Buying is a better deal, taking into consideration the traditional 20 percent down payment combined with  a 30-year mortgage at current rates. Of course, you can save much more on a 15-year mortgage, but monthly payments would be higher in the shorter-term.

In a blog post, Jed Kolko, Trulia’s chief economist, says homeownership remains cheaper than renting in all of the 100 largest metro areas.

The two main reasons: Falling mortgage rates and rent prices rising faster than home prices.

Mortgage rates on the 30-year fixed mortgage are now back under 4 percent.

“Consumers tell us that the main obstacle to homeownership is the down payment,” writes Kolko. “For those would-be homeowners – especially first-timers without savings or equity from another home – a low-down-payment mortgage might be the only option.”

Here’s how Trulia determines whether owning or renting is cheaper. To compare the costs of owning and renting, Trulia assumes that buyers get a 30-year fixed-rate mortgage at a 4.3 percent rate and make a 20 percent down payment.

Trulia then compares this mortgage with several other financing options, including all cash and an FHA loan. Trulia assumes people itemize their federal tax deductions and are in the 25 percent tax bracket.

“We also assume they stay in their home for seven years,” writes Kolko. “In short, our Rent Versus Buy model takes into account all costs and proceeds from buying or renting over an entire seven-year period, including opportunity cost.”

Opportunity cost can complicate the formula. The term refers to the outcome of how you would invest your money if you weren’t buying a home.



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