According to Trulia, the cross-over point is about 15 times annual rent, the company believes. In other words, as a rough rule of thumb, homes are probably fairly valued in a city when they cost about 15 times a year's rent.
So, for example, if you're paying $10,000 a year to rent a place, think twice about buying a home that costs more than $150,000. Dean Baker, economist at the Washington, D.C. Think-tank The Center for Economic and Policy Research, came to a similar conclusion in research on the subject in recent years. “Fifteen times is the historic average”, he said.
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Looking at the numbers above, the total mortgage pmnt on a $200,000 FHA purchase is $1,337/mo (that includes principle, interest, PMI, taxes, and insurance. Compared to $1,100/mo rent, it’s more expensive, but don’t forget to look at the tax breaks from owning (interest and property tax write-offs). The bottom line, at $200,000, it makes sense to buy. A savings of over $119,000 over 12 years versus renting! Plus, rent will go up with inflation, your 30-yr fixed mortgage is fixed and more money over time goes straight to paying down your mortgage. Contact me for more information or to request a personalized mortgage planning analysis.
Dan Keller, Mortgage Advisor