Photo (cc) by Images_of_Money
You might want to think twice before you renew your lease.
A new report by real estate website Zillow says it takes just two years for homeowners to see the payoff in buying over renting in about half of U.S. metropolitan areas.
Zillow’s “break-even horizon” analysis provides you with a concrete number of years you would need to live in a home for the costs of renting to exceed the costs of buying.
For example, if you live in Denver, your break-even horizon is 2.6. So if you buy and live in a home for more than 2.6 years in Denver, you will have more money and assets than if you had rented that home over the same period of time.
Zillow said it accounted for a number of costs when calculating the break-even horizon, including: upfront payments, closing costs, mortgage payments and monthly rent, taxes, insurance, utilities and maintenance. Historical and projected home value and rental appreciation rates, plus current rental prices, were also factored in.
According to a press release, Zillow chief economist Stan Humphries said:
Rents keep rising, and mortgage interest rates remain very low, which is helping to skew the rent vs. buy decision toward buying for those who can afford it. Many renters may ask themselves why renew a lease, when you can break even on the same home in less time in many areas.
It is important to note that not everyone is in a position to purchase a home, nor should everyone do so. You should have a good credit score, a sizable down payment and plans to stay in place for at least five years.
The Seattle-based company said it examined 35 cities in its report and also looked at specific neighborhoods.
The cities with the shortest break-even horizons were:
- Riverside, Calif. — less than one year.
- Orlando — one year.
- Miami-Fort Lauderdale — 1.2 years.
Those with the longest were:
- Washington, D.C. — 4.2 years.
- Boston — four years
- Phoenix — 3.3 years.
If you want to know how long you need to live in a home before the costs of renting exceed those of buying, click here to access Zillow’s interactive tool.