Life is moving forward and you’re wondering if you should rent a bigger apartment or take that big step into home ownership. Buying a home is a big deal. Let’s take a look at a side by side comparison between the two, and what it would approximately cost you per month.
Now, before we get started we just want to state that this is not an exact formula, there are plenty of variables to consider.
For our comparison we’ll look in the Midwest using average costs to give you a rough idea of what renting or buying might cost you. Also, we’re going with the plan to stay in the area for at least 5 years. That gives us a time frame to work in and compare costs.
Let’s get started. First up the house: It’s 12-hundred square feet with 3 bedrooms and one and a half baths with a full basement that’s unfinished and a 2 car garage. By comparison, the apartment we’re considering is 900 square feet with 2 bedrooms and one bath and a single carport. Size makes a difference.
The house we’re looking at sells for $120,000 while the apartment costs $900 dollars a month. To buy the house, if you use an FHA loan with a 3.5% down payment, your first expense comes to $4,200. If you’re in the 30-year fixed rate mortgage with an estimated 4.25% fixed annual percentage rate – also called the APR – your basic mortgage payment each month would be $580.12 dollars. Keep in mind that an actual interest rate would be determined by many factors including your credit score.
Back to the rental situation. With the apartment sometimes there are one time fees you pay up front like administration fees. Let’s say that’s $40 dollars and an application fee that’s $20 dollars. They also require a security deposit which typically is one month’s rent which is $900 dollars plus first month’s rent, so another $900 dollars. So to get started in your new apartment you’re looking at $1860 dollars.
Now going back to the house, the $580.12 mortgage payment we came up with doesn’t include property taxes. For our example we’ll estimate those at $150 a month; estimated homeowners insurance at $90 dollars a month and mortgage insurance or PMI estimated at $83.50 a month. Our example brings the total monthly payment to $903.62.
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Back to the apartment: You won’t have property taxes but you’ll want renter’s insurance, which may run about $40 dollars a month, bringing the monthly total to $940.
But wait, there’s more. There are utilities to think about. With the house we included gas, electric, water and garbage pickup so that total would be about $300 dollars a month. So the new total is $1,203.62. Also, I’m sure at some point you’ve heard of closing costs. In our example it would roughly add up to $4,200. However, we’ve left that out because for many mortgages, you can ask the seller to pay for the closing costs, but it is something to think about.
Now, going back to the apartment, we figured $100 a month for utilities so now it’s $1000 a month. So, the apartment is cheaper per month by $203.62.
However, let’s look at how much more you get for roughly $200 dollars more. More living space, and extra bathroom, more storage space with a full basement, or you can turn it into another room if you choose to finish it. A two car garage and more storage space, endless opportunities for adding your own personal decorating touches.
Plus let’s not forget privacy, no shared walls or floor or ceilings with noisy neighbors, or if you want to listen to your music loud while you work out, you can without the fear of your landlord being called. But hey, let’s not forget the biggest benefit, and that’s building equity. When you own your own home you build equity. For our scenario, with the cost of rent increases and property appreciation, the first two years of renting would be cheaper, but after that, the cost of owning a home comes cheaper with the savings and equity you would be building.
Now, sure, you are going to have some one-time costs up front when you buy a home. Much like the apartment where you needed money for a security deposit, application fee and administration fee, you will more than likely need to buy a lawn mower and other tools for the home and yard or if you’re lucky you have family that have extra ones they can give you.
Again, this example is not meant to be an exact proposal for you and your area and situation. There are many factors and moving parts to getting a mortgage but we hope this video inspires you to look into homeownership as a viable option.
A licensed mortgage consultant can give you more accurate numbers to help you make that decision. Also our website has tons of resources to help learn more about buying your first home and mortgage options that are available, you can click the link below. Here at AmeriFirst Home Mortgage we believe a knowledgeable home buyer will be a happy homebuyer, and our team is here to assist you with all of your questions and concerns, so that we can say, Welcome Home.