Am I throwing money down the drain?
The average rent for a 2 bedroom apartment in St. Louis, MO is $737/month. That doesn't seem completely unreasonable, does it? But, what does that mean if you are renting for 5 years? What that means, is that you have spent $44,220 and have nothing to show for it...well, I suppose you haven't been homeless, which is always a plus.
What could $737 mean in terms of a mortgage? That means, a $145,455.17 loan. That also means a $153,110.71 purchase price! What can you get for $153,000? I was looking online today, and I found a 4 bedroom, 2 bathroom house listed for $150,000.
Now, if you are truly someone who wants to budget everything out(which is smart)...lets include taxes and insurance in that $737 payment. That means you can get a loan for $105,982.94 if you are paying $200/month in taxes and insurance. That means, you can afford a $111,560.99 home. What can you get for $111,000? I found a 3 bedroom, 1 bathroom home at $110,000 looking online.
Now, I know what your question is...how much equity will I build after 5 years of owning a home? I did an easy amortization schedule on a $105,000 loan amount, and after 5 years of regular payments of $532.o2 with no pre-payments, you will have built almost $10,000 in equity. If you pre-pay $50/month, you will have added $3,000 in equity totaling $13,000.
On the higher priced home, at $150,000, you will have built $13,000 in equity. If you pre-pay an extra $50/month, you will have $16,000 in equity.
This is all not to mention that prices and rates are at an all time low right now. If you are renting and you have a steady job, you really need to look into buying a home. If you don't take advantage of this opportunity, you could be wasting a lot of money.
Please contact me if you want me to equate your rent to what you can afford if you buy a home. It could be a lot higher than you think!
