The question of rent vs buy often seems a simple conundrum. Many first-time buyers let it boil down to one question: do I have the down payment?
But the decision is often more complex, and West Chester has some particular considerations to ponder that can drastically impact your final decision.
The first thing you’ll want to think about is the cost comparison. Beyond the obvious benefit of earning equity as you pay your premium, owning a home allows you to lock down your monthly payment, whereas renting might mean an increase year after year.
In the borough, the cost of renting a property continues to rapidly increase, while property values rise at a more moderate rate. The average two- or three-bedroom property rents for around $2,100/month. If you owned, a monthly expense of $2,100 could put you in a house valued at more than $300,000. Chances are, that’s a lot more living space than in that two-bedroom rental.
Another major question is how long you plan to stay. When you buy, there are upfront costs associated with your purchase. Often these amount to anywhere from 2-5% of the total cost of the loan. Generally speaking, you’d need to remain in a property for three to four years in order to make that money back and begin truly reaping the benefits.
However, with rent values almost always exceeding mortgage payments in West Chester, the borough is a great place to consider an investment property. If you choose to move before you’ve made your money back, you can likely rent it out and have someone else pay your mortgage for you. Best of all, in West Chester you won’t see an increase in your property taxes even if it’s no longer your primary residence.
Now for the dreaded down payment. Many first-timers fear they’ll never save the 20% they need to purchase a property, but the truth is that 20% is a myth — you can put down far less. That number has become prominent because many lenders will charge a private mortgage insurance (PMI) fee of 1% of the total loan amount to insure owner’s with less than 20% equity. However, there are certain pockets in the borough that qualify for the Community Reinvestment Act where you’re able to own a home with 3% down and still have no PMI.
So what does that look like in reality? We recently had an updated borough town home with two bedrooms and one bath go under contract for $285,000. With 3% down, plus closing costs, the total cash-to-close was $19,481. Because they have no PMI, their total monthly payment is only $1,597, and this includes principal, interest, taxes and insurance. The fair market value to rent this property is around $1,900 per month!
The decision to buy or rent is a big one, and considering all your options can be difficult. But between high rental rates, and the availability of programs that require very little down, purchasing a home is often an affordable option. The reality is, by the time you’ve saved up first, last and security for a borough rental, you’re halfway to owning your own home!