Why we decided to buy instead of rent

By Stew

Three years ago, we moved across the country and almost went under financially when it took 16 months for our old house to sell. I immediately promised that I would never buy a house again. . . . Until last month when we signed on the dotted line for a home once again. Here is what changed my mind:

No more moving

Obviously we cannot tell the future for certain, but my wife and I plan to never move away from our current location. Even if my job situation changes, we are committed to staying in the Denver area. We really enjoy the weather, the culture, the mountains and above all, our church. A year ago, we expected that we could move at any time.

Lower payment

We have been looking for a lower cost rental for the past six months. The payment on the home that we have purchased, including taxes, insurance, PMI, capital and interest is well over one hundred dollars less than our rent payment. On top of that, we are building equity and have more freedom to make the house a “home”. Mrs. Stew was always a little frustrated that we could not do whatever we wanted as far as painting or altering the property. Purchasing a home gives us that freedom.

Low interest rate

We qualified for an incredibly low interest rate. It is a five-year ARM, but even if the rate is raised the maximum amount after five years, we will still have a pretty good rate plus five years of equity. I hope that we will not have too much trouble refinancing at that time.

Low down payment

After all is said and done, we will have taken possession of this property without spending much more than a deposit plus rent. We were able to take advantage of one of the government programs available to new homeowners right now. I am not a huge fan of the government being involved in the mortgage business, but sometimes you have to do what you have to do . . .

Rental potential

Our new place has some versatility as a future rental. It is not a large place, but the layout will allow us to sublet a room or two when our kids go to college or move out.  If we decide to move to another place, we will be able to turn around and rent it outright. The key is that we do not have a great deal of money tied up in the property, giving us flexibility in the future.

The bottom line is that this little house has everything we need and we are paying less per month than we were before.

sailorbill


15 Responses (including trackbacks) to “Why we decided to buy instead of rent”

  1. Michaele Says:

    Having both rented and owned in the last 20 years, I have to disagree with this statement:

    “After all is said and done, we will have taken possession of this property without spending much more than a deposit plus rent.”

    When our friend told us we’d require a fund for about $5,000 maintenance on an under $100,000 home – we didn’t believe him.

    A home requires maintenance and repair just like a car, and to leave that out of the equation is (unintentionally) misleading. The dollar amount will be higher or lower depending on what area you live in and what your house is like – but when the water heater blows, or you need a new roof, or the siding needs replacing . . . you are on the hook. If you don’t build those costs into the budget, they will be budget busters. You will also not be counting your actual true cost.

    I prefer owning to renting. I also think PMI is a ridiculous waste of money (you benefit nothing for this regular payment if you default, the bank does)so I wholeheartedly suggest paying enough on the mortgage to make that bill go away for good.

  2. Michaele Says:

    I forgot to mention after 13 years of home ownership, our friend was more than right.

  3. Derek Says:

    Your first point is what makes owning more beneficial. Over time (long-term), the costs/benefits will certainly sway in favor of owning. Also, low interest and depressed housing values (although Denver may be an exception) are both good reasons to buy – especially if you plan to stay for a while. Nice post.

  4. Financial Independence Says:

    Derek, what about freedom ? The home is not a liquid asset.

    Why do you think that prices of houses are depressed? Maybe it is their real value, or they are still overvalued.

    If you look on the trends prior baby boomers generation – the home prices were very stable and did not changed much.

    People do not have as many kids as they used to have, why do you suggest that the demand will stay the same?

  5. Salvatore S. Says:

    Just curious – why the 5/1 ARM? Interest rates are at one of the lowest points in history (if not THE lowest). Sure, you have a better rate today with the 5/1 ARM versus a 30-year fixed, but in 5 or 6 years when you may seek to refinance, rates will inevitably be much higher than where you could have locked in a 30-year fixed today.

  6. Alan Says:

    Nice article Stew. My wife and I just made the move across the country about 3 months ago, and having been renters allowed us to do so without a much of a hassle. (Just don’t get me going on moving companies…). We actually moved here because of some friends and the church. :) We decided to rent again just because we are not sure if this is going to be our final resting place so to speak. We were kind of in conflict because of the good opportunities to new home buyers right now. Hopefully things will still be favorable in a year or so if we have decided to stay.

    -Alan

  7. Ed Says:

    I agree with Stu. Getting a 15 or 30 year fixed is much much better than the 5/1 arm today especially since you already decided to stay in Denver for the rest of your life.

  8. Salvatore S. Says:

    @Ed – your comment appears to contradict what Stu did. Stu got a 5/1 ARM rather than a 15 or 30 year fixed. I don’t see the logic behind it. Stu, can you provide any color?

  9. Stew Says:

    Sure – I started a response, but I think I’ll save it for a post.

  10. Emily Says:

    ARMs are risky. I’m thinking you could still have a payment you could easily afford w/a fixed rate.

    The thing about owning a home, above and beyond payments, is all the maintenance you have to pay for. The smaller the house, and the fewer gadgets, the better, and that is what we are aiming for when we move in a couple of yrs. We have had enough of A/C and heating repairs, broken down water heaters, fences being blown over, etc., etc.

    Not to discourage you, but just saying that there are definite pluses to renting.

  11. Gary Says:

    That’s awesome that you have the potential to rent out a space in your home. This is less of an option in town here (Vancouver) where you’re happy to get one room when you buy a place! Perhaps I should think about the suburbs at some point.

  12. Kathryn Sias Says:

    The biggest plus to renting is no maintenance. I have stuck literally 100K in my house and still every month there are so many expenses just to maintain. Thanks!

  13. Miss T Says:

    An ARM??? Why not lock in for life – to save a couple bucks now and risk getting jacked in 5 years? Rates are at a historical low – like never ever been this low in my lifetime…and you got an ARM and you’re paying PMI?

    I have to say, this doesn’t sound like the most sound advice, yes, you’re owning for less than rent and that’s awesome. But you say you’re in it for life but are gambling with future interest rates? Hmmmm…

  14. tender Says:

    Only when housing prices, we should buy a house.

  15. Aiden Moor Says:

    Definitely, buying your dream home is a good idea and it will get you relief from almost all of the pains that are associated with having a room on rent.

    Your own home will help you stay peacefully.

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