Despite recent trends, buying a home is still cheaper than renting in the long run

If you're preparing to buy a new home, recent trends may have you thinking you've missed the perfect opportunity. Home prices, which were down after the bubble burst a few years ago, are starting to recover. In addition, interest rates are rising. These two developments may have you reconsidering a move.

Many may think that continuing to rent seems like a more viable option compared to buying a home. They choose to wait till interest rates come back down. For most, however, this is a mistake that will cost them money in the long run because many in the industry think that interest rates will continue their climb slowly upward.

If you're in the same situation, don't worry. Depending upon where you live, buying a home will still save you money over the long term. There are three things that make buying a home cheaper:

Interest rates

The simple fact is that higher rates mean a higher cost of owning. For most, rates would have to climb to over 10.5% in order for renting to be the better option.

Itemized deductions

Usually, mortgage interest and property tax payments are deductible, depending upon the state in which you live. The average American family is in the 25% tax bracket. On average, regardless of whether you own or rent, buying is 44% cheaper. If you only take the standard deduction, buying is still 35% cheaper than renting.

Staying put longer

The cost of buying and selling a home can be more than 10% of the home's value. If you stay in the home longer, you're able to spread those costs over more years. Forbes says that buying is 44% cheaper than renting if you stay put for 7 years, 37% for 5 years, and 20% for 3 years.

Based upon those three things, you would have to have a high interest rate, not take deductions and sell your home quickly in order for renting to be the better option.

The tipping point

Forbes discusses the tipping point, (http://www.forbes.com/sites/trulia/2013/06/14/buying-cheaper-than-renting-til-mortgage-rates-hit-10-5/) which is the interest rate at which renting a property is cheaper than buying it. Because of taxes and cost of living, areas primarily in California, New York and Hawaii have the lowest tipping point.

That being said, for every one of the top 100 largest metropolitan areas, buying is a better deal right now. Depending upon where you live, the tipping point ranges from 5.2% in San Jose, CA to 35.8% in Detroit.

If you're considering buying a home, although you may have missed THE PERFECT time to buy, now is still a very good time. Home prices are just beginning to rise and interest rates are still very low. Talk to a REALTOR to discuss your options.

Insurance companies scaling back water damage coverage

Homeowners have not been very profitable for insurance companies historically and the recent weather events (hurricanes, floods and tornadoes) have caused them to lose money. As a result, companies have looked for ways to squeeze profit from policies and may be squeezing homeowners as a result.

For example, it has come to light recently that many companies are not writing new policies in hurricane areas, especially Florida. But insurance providers are also cutting coverage in ways that are not covered by the news; that affect homeowners across the country; and that you may not know about until it’s too late.

The 14-day rule

Many insurance companies have quietly changed their policies over the past few years. In days past, if a slow leak developed in your plumbing, which is capable of causing extensive floor and drywall damage and mold growth, you didn’t have to worry about being covered.

Damage caused by a single event, like a dishwasher whose valve fails and flooding your kitchen, is covered. Many insurance companies have instituted the 14-day rule. In many cases, the source may be hidden behind a wall or foundation. Also, the evidence of the leak does not show itself immediately. If the leak occurred over more than 14 days, chances are you may not be covered.

What you should do

On your side, watch your water bill; an unusually high bill may point to a big leak. Keep a watchful eye for evidence of water damage, particularly around sinks, tubs and toilets. You may also consider buying wireless water alarms. They are inexpensive and will go off at the smallest leak.

Most people don’t read their policy. If you have a new policy or recently renewed your policy, call your agent and ask about coverage for such events. They may advise you to increase your coverage. The important thing is to know what your policy covers and what it doesn’t. That’s not the kind of surprise you want.

The Difference between Rate and Annual Percentage Rate

When you buy a house, chances are that you’re not paying cash. You’ll need to secure financing in order to pay for it. One of the things that you’ll notice is that the rate and the annual percentage rate (APR) are not the same.

The advertised interest rate is the cost of borrowing money and expressed as a percentage. Lenders must comply with the Truth in Lending Act, which requires that the APR be published as well. This number, also expressed as a percentage, includes the interest rate and:

• Points – both origination and discount


• Underwriting, loan processing and document prep fees


• Commitment fee


• Attorney and/or title closing fees


• PMI (private mortgage insurance) or MIP (Mortgage insurance premium) for FHA


• Prepaid interest

Why APR is important

If you’re considering two different loans with the same rate, the APR lets you know the true and total cost of the loan. The advantage of APR is that it allows you to more accurately compare the cost of borrowing from different lenders, since they may have different fee structures. A lower rate may not be your best option. It is possible that a lender may charge a higher interest rate but lower fees.

Why APR isn’t important

The fees associated with the loan are usually paid up front. It is calculated over the life of the loan, which is usually 30 years. If you’re going to sell your house in a few years or you plan to refinance, the APR may not be as big a consideration to you.

Although interest rate and APR are expressed as simple percentages, the way both are calculated are fairly involved. Make sure to ask your mortgage lender to fully explain all costs and fees of your loan so that you have a good understanding of the total costs.

Items most movers won’t move

Depending upon the state in which you live (or are moving to), there are some things your movers will not move. To save time and headache, ask for a list of items from your moving company.

Some items will not be moved because they pose a danger to you and the mover. They can also damage your belongings as well. For those reasons, the insurance companies that cover the movers will not allow certain items to be transported.

If the company you choose does not supply you with a list, be sure to ask for one.

Hazardous, flammable and explosive material

Of course, some of these items you will want to take with you. Some you should consider leaving behind or taking to places that will properly dispose of them. Some common hazardous items include: acids, bleach and solvents; ammunition and weapons; flammable and explosive material such as kerosene, fireworks, propane tanks, aerosol cans, fertilizer, charcoal, engine oil and gas.

Perishable items

Moving companies will avoid taking perishable items simply because if there is a delay in delivery, items will spoil or die. These items include food, plants and pets. Regarding house and outdoor plants - check with your new home state concerning any plants that you may or may not bring to your new home.

Personal and financial

You should personally transport any items or anything of a financial or personal nature that cannot be replaced. Items that would be very inconvenient if the moving truck is delayed are also included on this list:

• Cash and jewelry


• Bonds, financial statements, stocks and checkbooks


• Address books, photos and personal files


• Keys, both car and home


• Computers and software


• Medicine

This is by no means a complete list. Check with your moving company representative for a complete list of items they will not transport to your new home.