Wednesday, August 8, 2012

An unexpected perk of home ownership

Over in the Dollar Stretcher Community, there is currently an interesting discussion in progress about whether it makes more sense to buy a home or rent one. This is a decision, of course, that involves a lot more than just financial factors. When Brian and I were first married, we already knew—without having any idea of which way the real estate market was heading—that our biggest financial goal was to buy a house, because (a) we both wanted a house and yard rather than an apartment, and the rental market around here is mostly the latter, and (b) we both wanted a place of our own, one where we could knock down walls or replace windows or do anything we wanted that wouldn't actually violate fire codes, without having to answer to a landlord. However, we also tended to assume that buying a house would be a wise long-term investment—not because we expected to be able to sell it a few years later for more than we paid for it, but because each month's mortgage payment would bring us just a little bit closer to owning the place outright. After 30 years of making mortgage payments—or 15, or 10, or even less if we paid down the principal aggressively—we would have a home that was entirely ours. After that, for the rest of our lives—which might be another 30 years, or 40, or even longer—we would never have to make a monthly payment again. (True, we would still have to pay property tax, maintenance, and insurance, but a quick calculation showed us that this would never cost as much per month as rent.)

The downside of this, we figured, was that buying a home rather than renting would cost us more in the short term. We'd have not only a high up-front cost for the down payment but also a higher monthly payment throughout the term of the mortgage than we'd have if we continued to rent. However, it now appears that the second of these two assumptions may not have been accurate at all. Today, after reading on a Washington Post blog about how much home prices had risen in the past few months, I popped over to to see if our house's value had risen since the last time I checked it about six months ago. As it turns out, it hadn't (in fact, it had fallen, which I guess makes our neighborhood a contrarian one), but while I was there I made an interesting discovery. Along with its estimate (or "Zestimate") of overall value, Zillow provides a "Rent Zestimate" of how much it thinks a home could fetch in rent. And our Rent Zestimate turns out to be about $300 higher than our current monthly mortgage payment.

Isn't that something? Of course, Zillow's estimate may not be entirely accurate, but if it's even close, it means that we are actually paying less per month to buy this house than we'd pay to rent a similar one. Of course, this doesn't take into account the amount we ponied up for the down payment, but according to this calculator from the New York Times, that would pay for itself in just a few years. That makes "buy or rent," for us, a true no-brainer. We always figured that the benefits of home ownership would outweigh the downsides—but we never thought those benefits would include a lower monthly payment.
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