When Chris and Renae Donus moved to Northern New Jersey last May, they figured they’d rent a place.
But looking at monthly rents of $1,200 to $1,800, they realized they’d be better off buying.
So in August, they paid $217,000 for a Cape Cod with monthly mortgage payments not much higher than what they’d be paying in rent.
“It just really didn’t make sense to throw our money away without gaining any equity,” said Renae Donus, 28, a marketing manager. “We did the math, and it made sense to go ahead and incur the closing costs and look for a house.”
At some stage in their 20s and 30s, it’s a question many people face: How do you know when it’s time to stop paying rent and take the leap into homeownership?
“If you’re going to be in one place for five years or more, and you can afford it, it’s worth doing,” said Patricia Q. Brennan, a financial educator with Rutgers Cooperative Extension. “Prices keep going up on homes.”
In fact, house prices in Northern New Jersey rose 16.8 percent from the second quarter of 1999 to the second quarter of 2000, the National Association of Realtors recently reported.
It might be time to buy if:
– You’re planning to stay in the area for at least five to 10 years.
– Rents in your area are high. Tenants who are paying $1,000 or more in rent might be able to handle monthly mortgage payments — especially now, with mortgage rates at a relatively affordable 8 percent for a 30-year fixed rate loan. In the process, they’d get more space and start building equity in a place of their own.
“If you rent an apartment, just to move in you need a month and a half’s security and a broker’s fee,” said Joanne English-Rollieson of English Realty in Englewood. “A lot of the time that’s equivalent to a down payment on a house.”
That is especially true with new mortgage programs that allow down payments as low as 3 percent, she said.
You want the tax breaks of being able to write off mortgage interest and property taxes.
“There is a definite tax advantage to owning your own property,” said Tommi Joffe, manager of Weichert Realtors’ Franklin Lakes office in North Jersey, which helped the Donuses find their house.
The big tax break, of course, is deducting mortgage interest from your taxable income.
Moreover, there is the ability to write off property taxes is valuable in a region with high property taxes. After all, tenants can’t write off the landlord’s property taxes. But they still pay them — indirectly –because the landlord’s tax costs are rolled into the rent.
You want to force yourself to save.
“Every month, with every mortgage check, you come to own a little bit more of your house. After 15, 20, or 30 years . . . you will be the outright owner of a substantial asset,” writes Jonathan Clements in “25 Myths You’ve Got to Avoid If You Want to Manage Your Money Right” (Fireside Books, $12).
For some people, paying that mortgage might be the only way to build up their net worth.
You want the satisfaction of knowing it’s yours — “having your own space, your own property, and just investing in your future,” in the words of Renae Donus.
But don’t buy if:
– Your career is in flux and you may soon jump to a job out-of-state.
– The costs of buying and selling — real estate commissions, lawyer’s fees, mortgage application fees, title insurance, and so on — add up to thousands of dollars. Those costs more than wipe out the advantages of owning unless you plan to hold the house for at least five years.
Harvard’s Joint Center on Housing Studies reports that 35 percent of the homeowners who bought in 1985 moved within five years.
