Buying vs. Renting

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Why buy vs. rent? A home is an investment, and usually the biggest investment people make in their lives. Recently the downturn in the market has caused some people to be fearful of purchasing, but with current market conditions it is an outstanding time to buy, and unprecedented time in terms of relative value vs. previous years, coupled with interest rates at historic lows. When you rent, you write your monthly check and that money is basically getting thrown away. When you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and from your state taxes. This is a significant savings, because interest makes up the bulk of your payment in the first years of your loan. In addition your property taxes are deductible on your tax returns as a homeowner. Another huge benefit of home ownership is building equity. Each mortgage payment you make is going to partially pay the principal balance down and build equity. In addition, over the long term, property values will increase and build equity for the owner. This can be realized when a property is sold or through a home equity loan.

 

Below is a calculator intended to give buyers a rough idea of what they may be able to afford. This is by no means all inclusive, and a real pre-qualification is recommended from here. Income, credit score, debt and down payment can change these numbers considerably. Most renters think that what they can afford in rent will be equal to what they can afford in a mortgage. The reality is that it is about 30% more. The reason for this is that all the mortgage interest you pay in a year is deducted from your gross income and you are only taxed on the remainder. This savings allows you to change your withholdings, and receive more money in every paycheck. This calculator does not use the down payment amount to increase loan amount, although it can. Buyers will need a certain amount of cash to close their deal. Your lender can explain how much you will need, and the remainder can be applied to your purchase price. The calculation that can be helpful is what percentage of the loan your cash is. In a "normal" market buyer can qualify for conventional financing with 5 or 10 % down. In our current market buyers will usually need 20% for a conventional loan. Buyers with less than this may have to go with an FHA loan, which can require as little as 3.5% down.

Buying Vs. Renting
Current Rent: $
Down Payment Amount $
 
Results
Current Rent $1,000.00
Mortgage $1,300.00
Total Loan Amount $200,000.00
Down Payment $20,000.00
Down Payment Percent 10.00%
Interested? Apply for a loan with Jim Sakrison

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