In my entire career as a Real Estate Broker, I have never seen a better climate to buy Real Estate. With the current interest rates, your house payment would be far less for a purchase rather than renting. Historically, when credit tightens up, rents go up. In this case, the people that have retained a good credit rating through the bad economy, will benefit by way of being able to obtain a home mortgage at historically low interested rates.
Here is an example: Susie and John relocate to Murfreesboro, TN. They know that they love it here and just don’t know whether or not they should buy a home or rent. With all the bad press that the real estate market and the high foreclosure rate have been getting, they think that maybe they should rent for a while. Susie and John have a growing family and really need 3 bedrooms and at least 2 baths, a good size kitchen, a family room, and a 2 car garage. Let’s compare the 2 scenarios:
Renting: A 5 year old home, partial brick, 3 BR, 2 bath, 2 car garage with a bonus room. This rental in Murfreesboro, TN, would normally bring between $1100 -$1300 per month in rent. For comparison sake, let’s use $1200 per month. There will be an application fee of around $50, and then a security deposit usually equal to the first months rent of $1200. Your total out of pocket to move into this rental will be $2450 providing you don’t have any pets. In the event that you do have pets, you may be asked to put up another deposit, sometimes non-refundable, that can range from $200 to $500 per pet, if pets are even allowed! It can get pretty pricey, not to mention that your pets are family members too and moving without them would be unthinkable.
Buying : We find the same 5 year old home in the same neighborhood to purchase. The home price is $150,000. Based on the calculator on this website and provided by Zillow, the payment would be as follows:
Your monthly payment will be $961* Payment Breakdown, Principal & Interest $667, Property Taxes $120, Homeowners Insurance $55, Mortgage Insurance $119
Wow, that’s a savings of $239 per month! Anualized, that’s $2868. But that’s not all. There are several other factors we need to take into consideration.
What is the out of pocket cost for renting versus buying?
Buying: Downpayment of 3.5% = $5250 *
Renting: Up-front out of pocket = $2450
Renting Buying Savings Tax Savings** Total Savings**
1st year $16,850 $16,782 $68 $1478 $1546
2nd year $14,400 $11,532 $2868 $1449 $4317
As you can see, your savings is substantial, not to mention the benefits and pride of home ownership! The figures above include a total of payments for the 1 year period plus the out of pocket and down payments.
Now, let’s look at another situation. A couple had purchased their home as newlyweds 8 years ago. Since that time, they have had 2 children and their 1300 square foot home simply isn’t big enough for them now. They bought their home in the middle of the real estate boom and they are concerned that they will lose money if they sell now.
It’s true, their home is probably not worth as much as it would have been if they sold at the market peak, however, more than likely, they are not upsidedown in it either. A careful analysis by a Real Estate Professional should be done to determine the probably value. At first glance, you may think that this is a dismal situation at best. The one thing that needs to be considered is that yes, you may be selling at a “low” time in the market, but, you are also BUYING at low time as well. If you look at the numbers using basic math, it would look something like this:
Purchase price: $100,000 $300,000
10% drop in value: less $10,000 $30,000
Home value today: $90,000 $270,000
Now, let’s look at this from another angle. You are wanting to purchase a larger, more expensive home. You are now selling at a 10% loss right? OK, in real dollars, that’s $10K. The home you are looking to purchase has also dropped in value by 10% except in this instance, it’s $30k which is 3 times more than what you are giving up on your sale. That will give you a net advantage of $20,000 assuming the prices return to their pre-bubble value (and values are already on the rise.) So you see, you really didn’t lose money at all, you would be gaining a market advantage by “BUYING LOW.” Based on the low interests rates of today, and compared to your current mortgage rate from 2006, your payment would be surprisingly low in comparison.
If you would like to learn more about buying or selling, or schedule a “no obligation” analysis of your property, feel free to contact me.
* Based on an 30 year fixed FHA loan inMurfreesboro,TN, interest rate 3.66%
** Based on taking the Mortgage Interest Deduction on you tax returns assuming a 28% tax bracket. This is an estimate only and not to be considered legal or tax advise and only used for the purpose of an approximate example.
Posted on June 6, 2012 at 7:36 pm by Tami Roth