3 ms·

> I was pulling numbers out of the air for simplicity. But essentially, even if you only bank $10 in equity, $10 is better than $0 you'd bank if you paid rent.

by glenra 13y ago

> I was pulling numbers out of the air for simplicity. But essentially, even if you only bank $10 in equity, $10 is better than $0 you'd bank if you paid rent. Heck, then I'll do the same. Let's just pull some new numbers out of the air such that the rent is $20 cheaper than the mortgage payment. Now as a renter you can bank $20 in savings, which is better than the $10 you'd bank in equity if you had a mortgage. Problem solved!

clavalle 13y ago
Ok. But in my area rent is often more than mortgage + taxes. I know it is different in other places but that's why it is a simplifying assumption.
- glenra 13y ago
  Is it also more than mortgage + taxes + broker fees + interest to borrow the downpayment?
  - clavalle 13y ago
    So, I did some more detailed calculations on a $500,000 home with closing costs included. I left out property taxes because I assumed anybody renting would recoup property taxes through increased rent. So, assuming rent + taxes == mortgage + taxes on a $500,000 property with $100,000 down payment where the value of the property stays the same over the life of the mortgage: $500,000 30yrs at 4.25% 20% down $100,000 $1967.76 monthly payment $22,644 closing costs By year four you are in the black compared to renting by $6132 You'd need an investment on your $100,000 that returns 1.49% compounded annually to make up the difference if you rented and invested the $100K that would have been spent on the down payment. By year five you are in the black by 14,122 You'd need 2.645% By year six you are in the black by 22459 You'd need 3.382% 7 31157 3.881% 8 40233 4.234% 9 49701 4.5% 10 4.683% 30 5.222% Here is the amortization chart: http://www.myamortizationchart.com/30-year/400000-dollars/4_.. http://www.myamortizationchart.com/30-year/400000-dollars/4_.... Here is the closing costs calculator I used: http://michaelbluejay.com/house/closingcosts.html http://michaelbluejay.com/house/closingcosts.html In short, you have a pretty good shot at breaking even between renting and buying if you invest the down payment. If you have less than a 20% down payment (3% I think is what you need for a FHA loan) then you reach covering the closing costs faster with accumulated principal payments but your monthly payment can be significantly more (up to 20% more a month). IOW a huge amount depends on what you can rent the same house for. If rent == mortgage + tax these calculations hold. If rent is less than it is almost always going to be better to rent. If rent is more you are looking at a better situation buying if you are staying more than a few years. Also, interest rates would play a huge part.

by glenra 13y ago

clavalle 13y ago

Ok. But in my area rent is often more than mortgage + taxes. I know it is different in other places but that's why it is a simplifying assumption.

glenra 13y ago
Is it also more than mortgage + taxes + broker fees + interest to borrow the downpayment?
- clavalle 13y ago
  So, I did some more detailed calculations on a $500,000 home with closing costs included. I left out property taxes because I assumed anybody renting would recoup property taxes through increased rent. So, assuming rent + taxes == mortgage + taxes on a $500,000 property with $100,000 down payment where the value of the property stays the same over the life of the mortgage: $500,000 30yrs at 4.25% 20% down $100,000 $1967.76 monthly payment $22,644 closing costs By year four you are in the black compared to renting by $6132 You'd need an investment on your $100,000 that returns 1.49% compounded annually to make up the difference if you rented and invested the $100K that would have been spent on the down payment. By year five you are in the black by 14,122 You'd need 2.645% By year six you are in the black by 22459 You'd need 3.382% 7 31157 3.881% 8 40233 4.234% 9 49701 4.5% 10 4.683% 30 5.222% Here is the amortization chart: http://www.myamortizationchart.com/30-year/400000-dollars/4_.. http://www.myamortizationchart.com/30-year/400000-dollars/4_.... Here is the closing costs calculator I used: http://michaelbluejay.com/house/closingcosts.html http://michaelbluejay.com/house/closingcosts.html In short, you have a pretty good shot at breaking even between renting and buying if you invest the down payment. If you have less than a 20% down payment (3% I think is what you need for a FHA loan) then you reach covering the closing costs faster with accumulated principal payments but your monthly payment can be significantly more (up to 20% more a month). IOW a huge amount depends on what you can rent the same house for. If rent == mortgage + tax these calculations hold. If rent is less than it is almost always going to be better to rent. If rent is more you are looking at a better situation buying if you are staying more than a few years. Also, interest rates would play a huge part.