VA Rent vs. Buy Calculator

“Should I rent or buy my home?” is the chicken or the egg question of homeownership. With the VA loan program, potential home buyers will want to consider their options carefully based on what makes the most sense to put them in a better position financially. 

Using a rent versus buy calculator is a great tool that can compare estimated monthly payments to ameliorate the decision-making process. Because a portion of your VA loan is backed by the federal government, eligible military service members, veterans, and surviving spouses will want to heavily consider the favorable terms and lenient requirements afforded to them through the VA loan program. 

Hero Loan is here to break down how home buyers can use a rent vs. buy calculator to their advantage when estimating their monthly payments.

What are the Pros and Cons of Renting a Home?

One of the most significant factors when deciding to rent or buy a home largely depends on the amount of time you are planning to stay in that home. This is because a “break-even” point is established, reflecting which plan of action makes the most sense financially to each individual. Military service members will want to keep in mind the VA program offers certain benefits that can offset costs usually associated with conventional loans when choosing to rent or buy. Below are some reasons why renting a home may or may not be the best option for you:

1. Intending for a short-length stay period. Perhaps you already know your living situation for whatever reason is temporary. Maybe you have a job that will keep you in a specific location for a set amount of time and are not ready to put down roots yet. Maybe you aren’t sure about the area and want to give it a trial run before making a more permanent option. How long you are planning to stay will have a huge impact on your break-even point. 
2. Need to save some money first. While the VA loan option program can eliminate the need for a down payment on a house (a fee that is usually set at 20% of the appraised market value of the house), the VA funding fee and moving expenses may factor into the total costs necessary to buy a house. There are also other costs associated with home ownership that can add up, including property taxes, HOA fees, home insurance, and other maintenance fees that home buyers will want to be adequately prepared for. 
3. Need to improve financial records and statements. While the VA loan program can offer veteran and military personnel more favorable rates and terms on a loan, your credit score, Debt-to-Income (DTI) ratio and other financial records will impact your ability to qualify for better rates and terms. 
4. Cannot build equity. For many homeowners, built-in housing equity is one of their greatest assets when it comes to building wealth. When renting a house, there is no return on investment that comes from making your monthly payments. 
5. Still have to pay upfront costs. The total for the first and last month’s rent accumulates to add up to a significant chunk of money. If you are planning to be in a house long-term with no down payment required, you will want to strongly consider buying versus renting. Just be sure to research the neighborhood and make sure the property will meet the three S’s: safe, sound, and sanitary.

What are the Pros and Cons of Buying a Home with a VA Loan?

VA loans are one of the best home loan deals around, but there are some expenses unique to the program that home buyers will want to consider. There are also certain eligibility requirements that must be met to qualify for a VA loan and more rigidly structured parameters that home buyers will want to be aware of.

1. VA funding fee. This fee is paid by military service members as a means to continue the VA loan program. This is a one-time fee that is rolled into the loan. Surviving spouses and qualifying military disabled service members are not required to pay the funding fee. 
2. Property type and location. With a VA loan, home buyers are relegated to buying single-home, 2, 3, and 4 family unit homes that meet the rigorous criteria of the VA’s Minimum Property Requirements (MPR) appraisal. The property cannot be a farm or purchased on foreign land. 
3. Eligibility requirements. VA loan eligibility is determined for service members based on their ability to produce a Certificate of Eligibility (COE), a document that discloses the nature of military personnel service discharges.
4. No down payment required. This is one of the greatest cost-saving perks of purchasing a home with a VA loan. Typically, home buyers who are not able to put down a deposit of at least 20% as a down payment on a home are subject to higher rates and must invest in private mortgage insurance (PMI). 
5. More lenient loan requirements and greater purchasing power. Because a portion of each VA loan is backed by the federal government, eligible military service personnel can get a loan with more lenient requirements as well as more favorable rates and terms. Additionally, the VA sets a limit on closing costs and fees. Overall, it is easier to get access to a VA loan, and using a VA loan can save military home buyers thousands compared to a conventional loan.

How Does a Rent vs. Buy Calculator Compare Monthly Payments?

A rent vs. buy calculator will cross-compare monthly payments, costs, and fees that are used to determine the break-even point for homebuyers and tenants. The break-even point is estimated by calculating the following inputs: 

• Monthly mortgage payments vs. monthly rental payments. This input is fairly straight forwards. It will compare how much a homeowner would pay each month in monthly payments to how much a tenant would pay their landlord at the end of each month. Depending on your location and desired length of stay, this range could fall within a few hundred dollars of each other. Other costs and fees will need to be calculated to determine what makes the most sense financially for you.
• Time. Time will heavily influence where a break-even point occurs when comparing buying a home to renting. The longer you stay in a place, the more likely it is that buying your home will make more sense financially. For more transient occupants, renting may be the best option.
• Annual income. Annual income will be a significant factor in how much house you can afford. It will also impact your ability to qualify for a loan as lenders will want to check that there is a steady and reliable source of income coming in to repay the loan amount. Sources such as your salary, a spouse’s salary, or pension/retirement count as income. Partial income and bonuses are applicable only if they are considered reliable and can be predicted to continue for the foreseeable future of paying off the loan amount. To verify your annual income, your lender typically requires two years of W2s and current pay stubs.
• Annual home value increase vs. annual rental increase. These measurements are converse to each other. For homeowners, ideally, the assumption is their home will go up in value each year. For renters, their monthly rental rate may increase annually. Calculating these values is fundamental to determining the break-even point.
• Other costs and fees. The largest portion of expenses for renting comes from the deposit for the first and last month’s rent. Homeowners will need to keep in mind homeowner’s insurance fees, property taxes, HOA fees, interest, and other expenses that are calculated in addition to the monthly mortgage payment.

Using a rent vs. buy calculator is an invaluable tool that allows interested home buyers to see where a break-even point is determined when deciding between buying or renting their home. A VA loan comes with more favorable rates and terms that eligible military service members will want to be aware of as they will provide a significant advantage when it comes to more feasible monthly payments. 

Potential home buyers should also keep in mind which option makes the most financial sense to their lifestyle. Do you need more flexibility or are you ready to put down some roots and make a commitment to regular monthly payments? A rent vs. buy calculator is a prime starting point in the decision-making process when seeking to answer that question.

How Can Hero Loan Help You Determine if Renting or Buying is Right for You?

Our veterans, military service members, and their families deserve a lending service provider whose mission is to get them the best deal possible on a loan. At Hero Loan, our team of dedicated lending experts can walk you through the process to determine if buying or renting a home makes the most sense based on each individual’s unique financial location. 

We can get your home loan approved efficiently and painlessly, thanks to our ability to streamline the underwriting process in-house. Our down-to-earth service style is customer-focused, with lending service providers coming from the same communities we serve. We will provide each military service member with a personalized financial plan of action that will get them into the home of their dreams.

Using a calculator that cross compares renting a home versus buying it is a great way to start the homebuying process, but an expert lender will be able to provide you with more accurate information on which option makes more sense for you personally. Give us a call at 800-991-6494 to speak with one of our friendly lending experts or reach out to us through our online application.