Decision to Rent or Buy Term Paper

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Once it has been determined that a salary can support house payments, one must look to the down payment and determine whether one has sufficient financial resources to make a down payment. Actually, while such advice may have held true a generation ago, down payments are no longer required in property purchases. If a buyer is unable to make a down payment, they can roll the down payment into the mortgage, but will be subject to paying mortgage interest (PMI), to protect the bank's investment, which adds an additional $100 to the monthly payment. In addition, a buyer has to consider closing costs, which are costs incident to the purchase of a home, which are not recouped by the buyer. Typically banks require that a portion of the mortgage be immediately returned to them, the formation of an escrow account to cover expenses such as PMI and homeowners insurance, attorney's fees, and fees for the property inspector.

Taxes are an additional burden that homeowners must face. Property tax rates can be outrageous, depending on the location, and a person with a $100,000 home can expect to face at least $2,500 a year in property taxes. Taxes are generally paid with the mortgage payment, and such an obligation would bring the monthly payment to about $930. In addition to taxes, a homeowner is responsible for homeowner's insurance, which will add approximately $70 to the monthly house payment, bringing the monthly total to $1,000.

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While $1,000 per month seems like a large expenditure, one must consider that much of that money is recoverable as yearly tax rebates. Money paid on mortgage loan interest and for state and local taxes is not subject to federal income taxation, which can dramatically alter a person's tax liability, resulting in a greater take-home salary.

The monthly payment is not the only cost of home ownership. Many neighborhoods have neighborhood associations, which require the expenditure of yearly homeowners' fees. In addition, homeowners, unlike renters, are responsible for the maintenance in a home. Regular maintenance is relatively inexpensive, but the little expenses can add up, in both time and money. For example, a house with a yard either requires the owner to hire a yard service or to spend time and money each week on yard maintenance. In addition, all homes eventually require major repairs, which can be tremendously expensive. Furthermore, renters in large complexes often have free access to things….....

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