Buying a home or condo is a huge deal; doing so is both a life milestone and financial transition. But how can you know you’re ready for that jump?
A rent-versus-buy analysis is a great place to start.
What’s a rent vs. buy analysis?
As the name of this exercise suggests, a rent vs. buy analysis is an audit of your life goals and financial outlook to understand if renting or buying is the right decision for you. There are many different approaches to this analysis, but a logical starting point is a rent vs buy calculator from financial institutions such as Fidelity.
A step-by-step approach to this analysis might look like:
- Use the financial calculator to give yourself an understanding of what your existing financial situation enables you to do. As you do so, note that closing costs, your mortgage, taxes and HOA fees should all be factored into a home-buying budget.
- Consider your life stage and goals. Is owning a home part of starting a family for you? Do your financial goals include investing or owning property? Is there a neighborhood you’ve always dreamed of living in? While these reflections are possible on your own, it might be helpful to speak with a trusted friend or counselor.
- Consider others involved in the decision. Is owning a condo or home a mutual desire between you and your spouse? Do you have other family members who need taking care of? This step is especially important, as it’s directly linked to property values: if being close to loved ones necessitates living in a certain area, that area’s home values will impact your mortgage costs.
As you walk through this exercise, consider the fact that you can flex your budget to different home options. If owning a home in the short-term is important, you might aim for a lower cost; conversely, you might prefer to wait and save for a higher home price.
Buying at different price points
In addition to a rent vs. buy calculator, you might also consider your current cost of rent when assessing your readiness to purchase a home. The below mortgage estimates (over 30 years at current interest rates) are based on current interest rates and rent costs, and are inclusive of budget for closing costs, taxes and HOA fees; they also assume a 20% down payment. For example:
- If you live in a studio at The Elle (801 S. Financial Place), your $1,700 monthly rent would translate to a mortgage for the same amount for a $310,000 home.
- If you live in a one-bedroom at Emme (165 N. Desplaines), your $2,500 monthly rent would translate to a mortgage for the same amount for a $500,000 home.
- If you live in a two-bedroom at Park ONE (1140 N. Wells), your $3,500 monthly rent would translate to a mortgage for the same amount for a $700,000 home.
No matter your price point or timeline, our experienced and knowledgeable Luxury Living team would love to help you on your home- or condo-buying journey. Reach out to us or follow the link below to get started!