When Does It Pay to Buy a Home?
If you've been wondering whether or not to take the plunge into homeownership, now may be the time to consider your options. The price of homes has been dropping over the past several months, and no one knows how long it will continue. In many areas, buying a home may be a bargain compared to renting.
An easy way to calculate whether buying in your area is a good idea is to apply the rent ratio. Take the purchase price of a home divided by the annual cost of renting a similar home. Some experts recommend using the number 20 as your measuring point. If the ratio is above 20, you should consider renting instead of buying. If the ratio is below 20, buying may be an option you should look into, especially if you plan to stay in the home for more than five years.
For example: You find a home you love, and the asking price is $175,000. You research comparable rental units and find the average rent to be $1,200 per month, or $14,400 per year. The ratio for this scenario would be $175,000 ÷ $14,400 = 12. This ratio is well below 20, so buying a home may be a good option.
If you're ready to dive in and get pre-approved for a mortgage, contact SCCU. We'll answer any questions you have and help you decide if now is your time to buy.