How you could spend less when you buy a home in NYC: rent vs. buy examples
Have you compared the costs of renting vs. buying in New York City? Mortgage lender Brian Scott Cohen details how buying may save you money in the long run.
According to CNBC, the average rent in Manhattan, in June of 2022 hit a record of $5,000 per month. To put that in perspective, that’s $60,000 a year just towards rent.
Even if this number changes to $4,000 per month, that’s still $48,000 a year just towards rent. Here are three reasons why you should buy, and how you could spend less when you buy.
1) Build your own equity, not your landlord's. "Brian, what do you mean?"
When you first take a mortgage out, you own a small portion of your house. Every time you make a mortgage payment, your portion of your home equity increases. In fact, here’s a simple home equity math equation – it’s the current market value of your home minus what you owe. As you start to make home improvements and renovations, the value of your home appreciates.
2) Say goodbye to rent increases!
When you’re a homeowner, your mortgage is your mortgage – you don’t have to worry about an increase in your monthly mortgage payment.
First-time homebuyers (FTHB) are typically relieved that they don’t have to hold their breath to see if their landlord is going to increase their rent or if there rent will remain the same.
Here's a rent vs. buy breakdown to show you the math:
Rent Example
| Rent/mo | 3 years | 10 years | 15 years | 30 years |
|---|---|---|---|---|
| $3,600 | $129,600 | $432,000 | $648,000 | $1,296,000 |
| $3,800 | $136,00 | $456,000 | $684,000 | $1,368,000 |
| $4,000 | $144,000 | $480,000 | $720,000 | $1,440,00 |
Buy Example
| Purchase Price | 4.00% Annual Monthly Payment (P&I) | 5.5% Annual Interest Monthly Payment (P&I) | ||
|---|---|---|---|---|
| 15 Years | 30 Years | 15 Years | 30 Years | |
| $600,000 | $3,551 | $2,292 | $3,922 | $2,725 |
| $800,000 | $4,734 | $3,055 | $5,299 | $3,634 |
| $1,000,000 | $5,918 | $3,819 | $6,537 | $4,542 |
*Sample ‘future’ rates provided for illustration purposes only and is not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. OriginPoint LLC fka Guaranteed Rate Affinity, LLC (“OriginPoint”) cannot predict where rates will be in the future. Above scenario assumes first lien position, 740 FICO 20% down payment, 40-day rate lock on a single-family home in NY, and are subject to change without notice. Sample payment does not include taxes, insurance or assessments. Mortgage Insurance Premium (MIP) is required for all FHA loans and Private Mortgage Insurance (PMI) is required for all conventional loans where the LTV is greater than 80%. Actual payment obligation will be greater. Applicant’s interest rate will depend upon the specific characteristics of applicant’s loan transaction, credit profile and other criteria. Not all applicants will be approved. Restrictions apply. Contact OriginPoint for more information and up-to-date rates.
3) Renovations and decorations
When you’re a homeowner, you have the power to make renovations and decorate as you see fit. It doesn’t sound like a huge deal on paper, but when you start living in your space and want to paint the walls, upgrade doors, etc. you have the power to renovate. Even if there is an approval process (depending on if you are in a co-op, condo, condop), you know you can make the upgrades, if they don’t violate building codes.
When I was a FTHB, I asked myself a few basic questions, and now I will ask you:
- What is your current or projected rent?
- Would it be worth your investment if you sold your home in five years?
- Do you want to have an asset that appreciates over time?
Circling back to my original point, that you could pay less per month when you buy.
If you're still questioning if you can pay less, contact me Brian Scott Cohen to discuss.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply.
Equal Housing Lender, Brian Scott Cohen NMLS ID: 410025; OriginPoint LLC fka Guaranteed Rate Affinity, LLC (“OriginPoint”) NMLS 1598647; For licensing information visit nmlsconsumeraccess.org. Operating in the state of New York as OriginPoint LLC fka GR Affinity, LLC. Operating in the state of California as OriginPoint Lending LLC fka Guaranteed Rate Affinity, LLC.
Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. OriginPoint does not guarantee or assume liability for the accuracy, completeness or timeliness of the information. You should conduct additional research before making any mortgage related decisions.
*not advertised rates from OriginPoint