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Rent vs. Own: Price Wars

We hit up author Jane Hodges for the scoop on renting versus owning:

Many would-be owners leap from the rental pool into the mortgaged masses because the price to rent and price to own resemble one another. “My rent is practically as much as a mortgage!” the thinking goes—and it’s not wrong in Seattle, one of the most expensive markets in the country. (Indeed, check out this UW student paper on how to find a cheap rental in Seattle. Her takeaways: Think far from downtown, and find a neighborhood without a lot of rental inventory—where most people own.)

Of course, the key word is that rents and mortgages “resemble” one another. Do a little noodling and it swiftly becomes apparent that in Ownership Land, one house or condo could have dozens of different monthly payments depending on who bought it and how. If rented out, that house or condo has one price: whatever rent the landlord asks. How can an owned home have so many different payments? Here’s how: When it comes to a mortgage, down payment size, credit score, private mortgage insurance, closing cost financing, and other fees can all impact owners’ monthly bills.

Check this recently-listed Greenwood house – potentially $1252 per month: . If you put 20% down, you could pay $1252 per month in principle and interest. (This doesn’t include property taxes of nearly $250 per month, or your insurance of ballpark $60-$90 per month). Put 10% down, and your payment would be $1409 per month for principle and interest. (But now you have to pay mortgage insurance, plus taxes and insurance.)

· Listing: 946 N 83rd Street [Windermere]

Now check this Fremont rental for $1350 per month. Sounds kind of spendy, right? But then, you don’t have to pay $3000 atop that in annual property tax, you don’t have to pay $60-$90 per month for homeowner’s insurance. And hey, you don’t have to cough up a $65,000 down payment either!

On the cheaper end, monthly payments are also deceiving. Check this just-listed Capitol Hill condo for $209,000, which has a potential $797 monthly payment. It’s just 569 square feet, but hey, for a reasonable monthly payment, you can’t have it all. However, the $797 monthly payment is yours only if you put 20% down—i.e., over $40,000. Don’t forget that taxes add another $125 per month, and homeowner’s dues are $470. And if your credit is poor, your interest rate might be higher than the 3.9% 30-year fixed loan we’re modeling and you might pay mortgage insurance. Just saying? do you want to fork over $40,000?

· Listing: 411 Boylston Avenue East #304 [Windermere]

Now check out this Capitol Hill rental for $1050 per month. It’s also small--under 500 square feet. However, it’s yours for a $500 deposit. Garage parking will cost extra, but hey, no $40,000 down payment.

I don’t know about you, but if you want that affordable monthly payment that resembles rent, your down will have to be so high that it may not really be possible to achieve. No reason not to buy, if you’ve got the bug. Just keep in mind the “monthly payment” prices you see on for-sale listings don’t often include homeowners’ insurance, property tax, private mortgage insurance (if you’re making less than a 20% down), or homeowners’ association dues required in condo properties and some gated-type neighborhoods. Before you fall in love, do the math!

Jane Hodges is the author of Rent Vs. Own: A Real Estate Reality Check for Navigating Booms, Busts, and Bad Advice (Chronicle Books). She’ll be talking on a panel at Town Hall Seattle on April 10 about the topic.