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The “Cents” and “Sense” of Buying Vs. Renting

June 2, 2014

Prospective clients you work with may be torn between buying and renting a home. They are watching home prices rise, so they may think the time to buy is now, before they become too costly. At the same time, the economy is still sluggish, and making such a large, long-term investment can seem frightening. New data from Trulia, however, shows that right now, buying a home is more financially advantageous than renting one.

According to Trulia’s latest analysis, in all of the 100 metro areas it monitors, it’s less expensive to purchase a home. That includes high-cost markets like San Francisco and Seattle where rents have risen dramatically. Nationally, on average, buyers will save 38% on housing by buying instead of renting – a healthy margin – but down from the 44% savings that were realized a year ago.

Here are three questions to ask your client when helping them choose between buying and renting.

  1. Do you plan to stay in the home five to seven years?  It takes time to recoup closing costs and start-up costs of buying a home. If your client knows she will be moving in a few years, it may not be enough time to make a home purchase financially worthwhile. The break-even timetable is slightly different for each market and will fluctuate as market pricing does, so you may need to slightly adjust the length of time.
  2. Do you want a fixed housing cost or can you be flexible? By locking in a mortgage for 15 or 30 years, your buyers are assured their monthly payment will stay the same, which can give great peace of mind. Landlords can raise rents and sell their property causing upheaval for tenants. How much is stability worth?
  3. Beyond finances, are there other reasons to buy?  Becoming a homeowner isn’t just a financial transaction; it’s an emotional one. It is the place your buyers may celebrate milestones, nurture new friendships, interact with their community, watch children grow, and just create memories. It’s hard to put a price on that.

Watch future Mortgage Fortunes for new updates on the health of the housing market, the renting vs. buying question, mortgage news, and marketing tips for reaching homebuyers.

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