Rent or Buy – You Pay for the House You Occupy

The ironic thing when people think they can’t afford to buy a home for themselves, they end up buying the home for their landlord. There are several facts that support this notion.Home is Leveraged Investment-300.png

Mortgages, whether held by an owner-occupant or an investor, are usually amortized so that each payment reduces the principal amount owed so that the loan will be repaid totally over the term. A tenant is effectively retiring the landlord’s mortgage with his monthly rent.

In most cases, the mortgage payment including taxes and insurance will be lower than the rent tenants are paying. Some experts are saying that we may never again experience the incredibly low mortgage interest rates currently available. “Never” is a very long time, but then again it’s been an incredibly long time since interest rates have even been up to the historical average.

Renting precludes a person from enjoying the advantage a home has as a leveraged investment. When the borrowed funds cost less than the investment is returning, the rate of return on the down payment grows much faster. As you can see from the chart, a 2% appreciation on a home could result in big returns on the down payment. In most cases, there are very few or no alternative investments that offer homeowners similar returns.

Even if a buyer agrees with all of these things but doesn’t have the down payment or cannot currently qualify for a loan, they still need to investigate further. To find out exactly what types of loans are available and the specific down payment required, usually far less than 20%, they need to consult with an experienced, trusted loan professional. (An Internet lender or a “BIG” bank may not be the best choice.) Call for a recommendation.

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