Barry
Nordendale
2120 Churn
Creek
Redding, CA
96002
530
351-1823
Email
Each office
independently
owned and operated
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Can
you afford NOT to buy a home?
Sometimes it is hard to
look ahead to the future and make a change to your current
situation. Have you watched friends buy a home and over the
years they have become more financially stable?
Over
the long term buying a home has always been a good investment.
Consider the long term
consequences of renting and not
buying a home.
(The
folowing is an example only and not a quote for an actual loan or
purchase)
Rent vs Own - 5 years
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Rent $700
month with $25/month per year rent increase
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$45,000
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House
Payment $1,244.65 month ($160,000 Mortgage)
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$74,679
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Payment
Difference
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$29,679
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Tax Benefit
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$11,368
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Extra Paid for
Home Mortgage after Tax Benefit
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$18,311
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Home Equity in
5 years
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$44,867
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Net Gain
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$26,556
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You would have paid
$18,311 more buying a home than if you rented. The equity
increase in your home could be $44,867. This means you gain
$26,556 compared to renting.
See below for detailed
explanation
Let's
say your current rent is $700 per month.
This
is $8,400 per year. All of this money paid out gives you
absolutely no return or equity in
the property.
You
are at the mercy of your landlord when he
wants to raise the rent. On top of that you have limited freedom
to make changes to your residence or have pets.
If your land lord increases
your rent every year by $25.00 per month, in 5 years you would have
paid $45,000.00 total rent!
If you qualify to purchase
a home for $160,000.00, @6.5% interest, with zero
down, your total monthly payment would be approximately:
Principle & Interest $
1,011.31
Taxes ($2,000/Year) $ 166.67
Insurance ($800/yr)
$ 66.67
_________
Total Monthly payment $ 1,244.65
Annual
$ 14,935.80
_________
5 year total
$ 74,679.00
Minus Rent paid < $
45,000.00 >
_________
Difference
< $ 29,679.00 >
Now you say to yourself,
"But I am paying way more to buy than to rent!"
But are you?
Figuring the increase in
the value of your property and the tax deductions you get as a home
owner, you actually come out far ahead.
Remember
you paid $45,000.00 into rent for those 5 years with nothing to show
for it.
Here
is how you would fair under the following scenario.
Figuring a small increase
in value of your property each year of 4%, your property that you
bought for $160,000.00 would now be worth:
$160,000.00 X 1.04 = $ 166,400.00
$166,400.00 X 1.04 = $ 173,056.00
$173,056.00 X 1.04 = $ 179,978.24
$179,978.24 X 1.04 = $ 187,177.37
$187,177.37 X 1.04 = $ 194,664.46
__________
Increase in value $ 34,664.46
Plus all this time,
some of your house payment has gone toward the loan principle! At
the end of 5 years your balance due on the loan is approximately $
149,777.58
This
is an equity gain of $10,223
Now for the income tax break.
If have enough other
regular deductions to meet the IRS standard deduction, all of the
interest paid on your mortgage would be deductable, 5 years interest
paid of $50,456.09.
If
you are in a 25% tax bracket, for the 5 years this would amount to
around $11,368
saved in
taxes paid.
(an average of
$2,273.60/yr or $189.47/mo)
So
lets add it
all together!
Gain in property value $ 34,644.00
Gain from loan pay down $ 10,223.00
Home
Equity
$ 44,867.00
Home mortgage Payments < $ 74,679.00 >
Rent Paid
< $ 45,000.00 >
Difference
< $ 29,679.00 >
Tax deduction gain
$ 11,368.00
___________
House pay more than rent < $ 18,311.00 >
Equity
Gain
$ 44,867.00
__________
Difference saved
$
26,556.00
Home equity
$ 44,867
Tax savings
$ 11,368
Total
$ 56,235
House payments
< $ 74,679
>
5 year
cost
$ 18,444
Divide by 60
months =
$ 307.40 Month
Although most your money is tied up as equity, it has only cost you
$307.40 per month to live in your home for 5 years.
The net worth of your property equity is $ 44,867
Another thing to consider is the fact that part of your house payment
is insurance. You may already be paying renters insurance.
This would be a plus toward the gain from buying a home. On the
negative side there is the cost of repairs on your home.
No
one can predict what the actual rent increases or home value increases
will be. I believe the thing to keep in mind is, what will your
rent be compared to what your house payment and home value would be 10 years from now.
There
are other loan programs that can make your payment even lower in the
first years, with gradually rising payment as your income increases.
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