Renting vs Owning
Lower Your Cost of Housing
Homeowners still have considerable advantages from the amortization of the mortgage and the appreciation enjoyed by most homes even with taking the standard deduction instead of itemizing to take the interest and property tax deduction.
There is an adage, “Rent or buy, you pay for the house you occupy.” You either pay for it yourself or for your landlord. The people who have job security, sufficient income, good credit and the funds for the down payment and closing costs can enjoy the many financial and emotional benefits of homeownership.
Looking at a $350,000 home purchased with an FHA mortgage with 3.5% down payment at 3.25% interest for 30-years, the total payment would be $2,420 a month. During the first year, the average monthly principal reduction is $573 a month which build the owner’s equity in the home.
At an estimated 3% appreciation, this home would increase in value at the rate of $875 a month during the first year which again builds the owner’s equity in the home.
Even if you consider the buyer will now be responsible for repairs and possibly homeowner’s association fees, the monthly net cost of housing in this example is $1,122 or less than half the monthly payment. The difference goes to equity which a tenant does not benefit from.
If the buyer were paying $2,750 monthly rent, they would be paying $1,628 more each month to rent than to own. In a year’s time, they would lose $19,500 of equity by continuing to rent. The down payment in this example is only $12,250 which would leave $7,000 to pay for buyer’s closing costs.
| Purchase Price |
$350,000 |
| Down Payment |
$12,250 |
| Total Monthly Payment (PITI + MIP) |
$2,420 |
| Less Monthly Principal Reduction (average first year) |
$573 |
| Less Monthly Appreciation (average first year at 3% annually) |
$875 |
| Plus Estimated Maintenance & HOA |
$175 |
| Net Cost of Housing |
$1,122 |
The equity for the homeowner in this example at the end of seven years would be almost $140,000 based on the appreciation and amortization of the mortgage. Whether you rent or buy, you pay for the house you occupy.
Use this Rent vs. Own to plug in your own numbers for the price home you’d like to buy. If you need help with it, contact me and we can do it over the phone at (503) 851-1645 or in an online meeting.
If you would like any professional residential Real Estate advice, contact us at Paramount Real Estate Services. 1008 12th St. SE Salem, OR 97302
Also, to mobilize us right away to help you move, visit us here:
Home Buying-Don’t do it Alone!
Why homebuying begins with the agent
It takes a team of professionals to buy a home like the lender, the appraiser, the inspector, the property insurance agent, the title officer, and others but the real estate professional may play the most critical role.
Baking bread seems so simple. There are only four ingredients: flour, salt, yeast, and water; yet, there are steps that should be followed as well as a certain sequence to get the proper results. Some people mix all of the dry ingredients before adding the hot water to activate the yeast. Other people will activate the yeast in the warm water first to allow it to “bloom.”
Both methods can achieve satisfactory results but one knowledgeable person needs to be in charge of the bread instead of having multiple people to be concerned with just their one ingredient or contribution like mixing, kneading, fermentation, benching, shaping, proofing or baking.
Similarly, in a home purchase, the buyer’s agent can be the one who puts things in the proper order and sees that no steps are missed. The buyer’s agent coordinates between the other professionals with the common goal of getting the home closed on time according to the terms agreed in the sales contract.
Even if a buyer has been through the process before and possibly, multiple times, the buyer’s agent will most likely have far more experience because it is their job. They perform their job on a daily basis and are not personally or emotionally involved like a buyer is.
Your agent understands what and when the various steps should be done and by whom. They have worked with enough of the other professionals to know who is good at their job and can offer recommendations. They have seen the things that make a transaction go smoothly and what can derail one.
Experience is a great teacher, but the lesson does not have to be learned by going through it by yourself. Take the luxury of using your real estate professional’s experience acquired through years of study and practice. Allow your agent to advise you and coordinate the efforts to achieve the results you are expecting and deserve.
Learn more about the process and different steps by downloading the Buyers Guide
If you would like any professional residential Real Estate advice, contact us at Paramount Real Estate Services. 1008 12th St. SE Salem, OR 97302 503-851-1645
Also, to mobilize us right away to help you move, visit us here: