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It's up to you, but consider these numbers!
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One of the most common arguments people use against buying a home is that they would be living in it for only a few years, and that it wouldn´t be worth the time, money, or aggravation involved in buying a home and getting a mortgage.
They figure that renting would be easier, cheaper and a better use for their money. If you know you´ll be moving in a few months, you´re right, but at what point does it pay to buy?
Let´s look at $1,000 a month as both a rental and a mortgage payment and see what we get for our money. The first thing to remember is that if you pay $1,000 a month rent, at the end of the month, you´ve had a place to live for a month.
By the way, if you rent a place for more than a year, at the end of that year you can be sure that your rent will increase. What will you get for that extra money? You´ll get that same place to live. Period! | |
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Orlando Real Estate
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If you pay $1,000 a month as a mortgage payment, at the end of that month you will have had a place to live just like the renter. Unlike the renter, you will be building equity in your home and likely taking advantage of rising property values.
Let´s look at what $1,000 means as far a buying or renting power. We know that $1,000 a month will get you a better apartment in some cities than in others. It´s the same with a $1,000 a month mortgage. It depends on your local property values.
As far as you are concerned, your $1,000 a month rental payment is just that rent. A $1,000 a month mortgage payment, however, is composed of four major elements referred to as P-I-T-I. "P" stands for principle, the portion of the payment that lowers the amount borrowed. The first "I" refers to the interest on the loan, and the second "I" refers to the insurance on the property as well as any assessments required. The "T" refers to property taxes.
Let´s consider taxes to be $200 a month in our example.
At 5.5 percent interest for 30 years, the remaining $800 of your payment would get you a loan of $141,000, and a home in the $140,000 to $150,000 range, depending on your down payment. Many people claim they don´t have the down payment and closing costs.
In today´s market, it is possible to get a no-down-payment home loan through the Department of Veterans Affairs or the Federal Housing Administration. Many conventional lenders also offer no-down or low-down-payment mortgages. As for closing costs, when you rent an apartment you sometimes have to pay first and last month´s rent, plus a security deposit. Often, that amount equals normal closing costs.
In this example, the $141,000 mortgage loan has no down payment. At the end of your first year, you would have paid $7,700 in interest and reduce the amount owed on the mortgage by about $1,900. That means you would "own" 1.35 percent of your home. That would be on top of any increase in the home value, and the $7,700 in interest payments would be a tax deduction.
In year two, you would pay $7,600 in interest and reduce the principal by $2,000 more. That would increase your "ownership" to 2.76 percent, plus the increase in property value, and you would have a $7,600 tax deduction. By the end of year three, your "ownership" would have increased to 4.25 percent, plus any increase in property value, and you would have a $7,400 tax deduction.
What would you have if you had rented for those three years? You would have paid more than $36,000 in rent andrents increase as property values do. What wouldn´t you have? You would have no equity, no ownership, and no real estate tax breaks. To break even on that $141,000 house, you would have to sell if for $155,100.
If property values increase at roughly 3 percent per year and in today´s market most home values are going up more that then your home would be worth $155,000 at the end of three years. You would also have your $6,000 equity. So if you sold it for $155,000, you would have $6,000 in cash.
In today´s market, many people are seeing their property values increase by 10 percent in less than three years. In many areas, they see it happen less than two years.
So, should you rent or buy? It´s up to you!
Author, Jim DeBoth is president of .interest.com, a national publisher of mortgage rates and information
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