Should You Buy or Rent in West Michigan?
When choosing between whether you should purchase a home or continue to rent, there are many factors you should keep in mind. The base cost of a mortgage payment can often be comparable to the monthly cost of renting. However, there are other financial aspects to evaluate prior to purchasing a home because there are more cost associated with home ownership than that of renting.
1. Down Payment – Many lenders require home buyers to have 20% of the home purchase price for a downpayment. If you do not have 20%, you may be able to do less, but you will need to pay for private mortgage insurance (PMI) until you’ve reached the 20% mark in mortgage payments. PMI can range from .05% to 1% of your total loan amount, which can make for an additional cost of $100+ per month in your mortgage payment.
2. Closing Costs – Upon purchasing a home, you will need to pay for “closing costs”. These costs include lender fees, escrow fees, title and recording fees as well as admin fees from the real estate brokerage you use. Sometimes the costs are as low as $1,000; other times a buyer will pay close to $6,000 in closing costs
3. Monthly Expenses – In addition to paying a mortgage, home owning means monthly expenses including home insurance, a home owner’s association, utilities, taxes, loan interest, and PMI (if you do not put down 20%). It is important to assess these costs and address your budget to determine if you can afford these additional monthly expenses.
4. Savings – When renting, if something goes wrong in the home, chances are that the landlord pays for those repairs. However, when owning a home, those repairs fall on the home owner’s responsibility. You will need to have savings for maintenance and repairs like cleaning the gutters, repairing/replacing the roof, hiring a plumber or electrician, purchasing new appliances, etc. A good rule to follow is to set aside 1% of the home purchase price for these expenses per year.
5.Timeline – A final question to answer is how long you plan to stay in this place of residence. Expenses like a home inspection, title insurance, real estate commissions, attorney fees, and other closing costs are covered above are easier to spread out over many years. Therefore, if you are only planning to be in the home a couple of years, these costs may add up to more than you would pay in rent over those couple of years in the home.