Renting vs. buying: why are you giving away your money?

By Christine Alleman

For the Deseret News

Published: Monday, Feb. 4 2013 10:15 a.m. MST

This Tuesday, Aug. 21, 2012, photo, shows an exterior view of a home sold in Palo Alto, Calif.

Paul Sakuma, AP

Enlarge photo»

Have you felt the pinch of paying rent lately? Are your rent payments more than a house payment? Then it may be a great time to buy your first new home.

First, is home ownership right for you?

If you are planning on living in the same area for at least 2 years then it will make sense for you to buy.

Even if you are afraid of the repairs and maintaince that owning a home requires there are still options available for you. You don’t have to be a handyman to own a home.

Can you afford to buy? Having a savings account is important when you buy as well as not having a lot of debt. The more you owe the less you will be able to afford. Having a down payment saved gives you more options with more lenders.

Pay attention to your credit. Today, most lenders and banks are requiring at least 620 FICO scores. However, some lenders can pull your credit scores and tell you what you need to do to clean it up.

No down payment, no problem

If you don't have a down payment saved you can still buy. There is a Utah housing cooperation loan available that gives you down payment assitance upto 6 percent on most of its loans. Grant programs can also help with the downpayment dilemma. They vary from area to area.

Your CPA or tax guy loves home ownership

Interest paid on your mortgage can be used as a tax deduction. Property taxes are another great tax deduction that you only get through home ownership. No portion of the rent on your principal residence can be used as a tax deduction. Home ownership puts money in your pocket.

Rent vs owning calculator

Buying a home can save you money. You can see this for yourself by using the rent vs owning caculator. Every area is different. Check your area rents and home ownership costs. Here is the link to the calculator.

http://homes.yahoo.com/calculators/rent_vs_own.html

I ran a scenario in Orem, Utah, to give you an idea.

Based on the scenario of buying a house valued at $200,000 versus renting the same home at $1,400 per month, this is what I came up with using the calculator:

"You would save approximately $17,319 (in today's dollars) by buying a home, rather than renting, over the 1 year timeframe you have entered.”

You can run different scenarios based on your own situation. The amount saved over time only goes up.

Why are you paying someone else’s mortgage?

When you pay rent you are paying for your landlord’s mortgage. When you pay on a traditional mortgage some of your payment goes towards interest and some towards principal — the the amount you owe on your house. Over time, as the mortagage is paid down, the amount you pay towards principal goes up and the amount you pay to interest goes down. When your landlord pays off his mortgage he owns the house and you keep paying rent.

The big picture

There are a few things we can generally count on. Inflation — the prices we pay for just about anything continue to rise. The availability of land is finite —no more land is being made. The world population is increasing — including Utah. The Beehive state saw its population grow by 1.5 percent in 2012, ranking 5th in the nation. There will always be a demand for housing.

If you are tired of paying rent and want to get moving for real, call a realtor who can help you get started.

Christine Alleman is a licensed real estate agent with the state of Utah. She has 11 years of experience selling real estate full time with Alliance Realtors (801)687-6596. "A happy client is an educated client" -Christine Alleman

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