To Rent or To Buy? When in Doubt, Check the Numbers

 

Finding the perfect housing can be tricky – it requires a strategic look into your financials, an understanding of the local real estate market, and an assessment of your opportunities. In this article, we are going to review that second factor: the local real estate market. More specifically, we’ll examine the cost differences between owning and renting in the Baytown area.

Before we assess the numbers, it is important that you understand the kind of financial commitment that each option demands.

For the purpose of this article, we will pull statistics from Baytown, TX. The median home value in Baytown is $210K, while the median household income in the city is $49,930; it is recommended that your rent dominate no more than 25% of your income; therefore, we will operate under the assumption that rent costs $1,040.

The Cost to Buy

Purchasing a home is a long term financial investment that, should the opportunity arise, is the best choice for most consumers. The challenge, however, is that purchasing a home brings a heavy dose of upfront costs, which many individuals do not have the capital to handle. Let’s take a look at the costs associated with buying a home from start to finish:

  • Down Payment: Depending on the loan that you qualify for, your down payment can vary, but it is necessary to earn your first home. If you qualify for an FHA loan, then you will need to put down 3.5%; however, if you need a conventional loan, you will need to put down 5% – 20%. For a home that costs $210K, an FHA loan will require a down payment of $7,350, while a conventional loan will require a down payment of $10,500+.
  • Closing Costs: As the buyer of a property, you will be responsible for a portion of the closing costs, generally 2% – 5%. For a home that costs $210K, you will be responsible for a minimum of $4,200.

Just to purchase a $210K dollar home, a homebuyer will need a minimum of $11,550. Once you have purchased the home, there are additional monthly costs to consider.

  • Did you qualify for an FHA loan? If the answer is yes, then you will need to pay monthly mortgage insurance – the cost of this can range. This fee is typically 0.5% – 1% of the entire loan amount. If your FHA loan is $202,650, you will be paying $2,027 annually, or $169 monthly for your mortgage insurance.
  • Monthly Mortgage. You will be responsible for paying off your loan, plus interest, to your lender.
  • Property Taxes. As a homeowner, you will be responsible for paying these annually. The average property tax rate in Harris County (including Baytown) is 2.259%. For a $210K home, this is equal to $4,744 annually, or $395 monthly.

When crunching the numbers on your potential home buying costs, don’t forget that there is a handful of variables that influence the values, especially when considering the loan calculations. Your credit score, debt-to-income ratio, recent payment history, housing history, investment statements, and proof of income can all affect your loan terms. For example, if you have poor credit, you should expect a higher interest rate, and therefore a higher monthly payment.

Lastly, if you are considering buying a home, don’t forget to factor in the cost of maintenance. There is no estimated amount we can provide for this – it all depends on the quality of the home. But remember: all maintenance work will be your responsibility.

The Cost to Rent

This one is much simpler than buying a home. The upfront costs to renting a home typically consist of first month’s and last month’s rent. Therefore, if you are paying $1,040/month, you will need $2,080 to move-in.

After your move in, you will only be responsible for the rent. If you move into a home managed by a responsible landlord, then your landlord should be responsible for all maintenance. The only additional fees you should expect to acquire include pet rent, parking rent, and renter’s insurance, should you choose to purchase these add-ons.

Should You Rent or Buy in Baytown?

At the end of the day, buying is always the best option. It offers individuals the chance to build equity, develop a more stable long term financial plan, and reduce tax costs. It also provides the homeowner a sense of pride. However, to really benefit, one must be in the correct financial position to own. This not only includes potential homeowners, but also current homeowners. What do we mean? If you are a homeowner, you may be overpaying on your mortgage and therefore drowning in debt. If this is the case for you, then it may be time to re-assess your position and identify alternative options so that being a homeowner is not only a benefit to your finances but also a benefit to your lifestyle! If you want a more in-depth review of this opportunity, contact us today. We may be able to help you transition into a more affordable home.

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