Many homeowners found themselves stuck with an underwater mortgage when the housing market crashed. As a result, cautious home buyers stuck to renting in fear of diving headfirst into a bad investment.
Now that the housing market is stabilizing and mortgage interest rates are at a low, it’s worthwhile for long-term D.C., Maryland and Virginia area residents who are currently renting to reconsider homeownership.
Deciding whether buying or renting is the right choice for your family can be a challenge. After all, there are many factors to weigh including how much home you can afford, rental rates, and your future plans. Fortunately, Zillow crunches the numbers each year to help you decide which is more advantageous, buying a home or renting one in your local market.
Zillow’s Breakeven Horizon report shows how long you need to own a home in a metropolitan area before the cost of purchasing it will give you a financial advantage over renting it. To calculate the Breakeven Horizon, Zillow measures the cost of renting a home like the security deposit and other fees against the cost of buying one including the down payment and taxes.
According to the last Breakeven Horizon report published at the beginning of 2016, it takes 4.5 years for a home purchase in the D.C. metro area to outweigh the cost of renting.
Based on this data, buying a home may be less cost effective if you’re a transient resident. But, for D.C. metro area residents who plan to stay put for at least five years, investing in a home instead of renting will likely be more financially gratifying. Long-term renters on the fence about buying a house should at least compare costs before settling with renting for the foreseeable future.
“Break even” data aside, we can all agree there are some short-term benefits of renting instead of buying. These benefits may be what’s holding you back from making a purchase. You don’t have to worry about repairs, maintenance or security. And once a lease ends, you’re free to move on to explore a new rental or neighborhood.
But, these perks don’t come cheap especially in this area.
According to a study published in March 2015 by the DC Fiscal Policy Institute and reported by The Washingtonian, the rate of households spending more than half of their income on rent is rising. “For households that earn up to 80 percent of the area median income ($107,300 for a family of four), the rate paying more than half on rent has jumped from 1 percent to 10 percent.”
D.C., in particular, has the sixth most expensive median rent under San Francisco, New York, Boston, Oakland and San Jose. Whether this rent money is better spent investing in a place to call your own is something to think about.
Interested in learning more about your mortgage options or prequalifying for a home loan?