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Own vs Rent: How Much Home Can You Purchase For $3000 a Month? Saturday, March 28th, 2015

In many parts of CA it is now cheaper to own a home versus rent, especially when you factor in all the financial benefits and tax deductions you get to take advantage of when you own a home. I wanted to share a “Own vs Rent” financial analysis report I sent a client this week, that shows how much home they can purchase for $3,000 a month vs renting for the same monthly payment.

Craig Sewing’s American Dream TV Show

First of all, I wanted to share my recent appearance on the Craig Sewing TV show, the American Dream. We were talking about the future of interest rates and tips to help buyers qualify to purchase a home. Craig’s show airs on a Saturday morning at 10am on Channel 4 on Time Warner and Cox, and he always has great content for the real estate and mortgage markets. You can click in the link below to view it.

Compare Owning vs Renting for $3,000 a month

There are many families and individuals all over California are paying $3,000 a month in rent. What many don’t know, is how much home they can purchase using the same monthly payment.

Instead of paying $3,000 a month in rent to your landlord, did you know you can purchase a $550,000 home with only 10% down conventional jumbo financing with No monthly mortgage insurance “PMI”, for the same total monthly payment? Here is more information on how to qualify for this program (Click HERE).

Here is the example of a “Rent vs Own” report comparing owning vs renting for $3,000 a month. On the left column is the $3,000 in monthly rent.

On the right column, the buyers are able to purchase a $550,000 home with a down payment of 10% using conventional jumbo financing, and they can qualify for a interest rate of 4.125% with NO monthly PMI, and have a total PITI payment of $3,000 a month.

As you can see above, by owning a home, they will get to take advantage of tax benefits of $780 a month and also pay $697 a month towards principal, versus no benefits from writing a check for $3,000 in rent every month.

Rent vs Principal paid over 10 years

In this section of the report, it shows the rent versus principal paid over 10 years. You can see the buyer will have paid down the principal on their loan by $103,380over the next 10 years, whereas paying $411,821 in rent over the next 10 years.

Compare Net Worth in 10 years

In this section of the report it shows the buyers net worth after just 10 years of owning a home. The buyer will accumulate a net worth of $215,922 over 10 yearsfrom the financial benefits of home ownership.

These 3 main financial benefits to owning a home are, paying down the principal on the loan, substantial tax deductions at tax time, and accumulated equity gains due to appreciation on the property.

In this example I used a 3% annual appreciation rate. Whereas with renting, they will have a a zero net worth due to paying rent to their landlord over the next 10 years.

In Summary: Based on the information and figures above, I think it is fair to say that it makes better financial sense to own versus rent a home.

Here is an article you can review that explains how to qualify for the 10% down conventional loan program with No monthly mortgage insurance “PMI” (Click HERE), there is also a Q&A section in the article too. This program also allows for 5% of the down payment to be gifted too, in case a buyer is short on down payment funds.

The Impact of Lower Rates on Buyer Affordability

With rates continuing to move lower recently, it is important that potential buyers also understand the impact of lower rates on their purchasing power.

Changing mortgage rates do more to influence home affordability than changing home prices. Now that rates have been moving lower again recently, this is helping buyers regain some of the purchasing power they lost recently.

This is a chart that all buyers should review, that shows the impact of declining rates on buyer purchasing power or affordability“. As you can see, when rates decrease by just 1%, a buyer gains 10% in purchasing power or affordability, or vice versa, when rates increase by 1%, a buyer loses 10% in purchasing power.

For example, see below how the payment at the 4% rate on a $400k loan, is roughly the same payment as the 5% loan at $360k, a gain of 10% in purchasing power for a buyer.

Why it’s a great time to buy a home 

I think it’s a great time to purchase a home, especially as the cost of borrowing money is still on sale. Yes home prices are moving higher in some areas, but when you crunch the numbers and weigh up all the financial benefits that come with home ownership, and compare it to what you are paying in rent, you will be surprised how much home you can actually afford to buy in many cases.

A good idea is to talk to your accountant when you are doing your taxes, and ask them what the mortgage interest deduction and deduction for real estate taxes will do for your income, you will probably find it is now cheaper to own than to rent in many areas.

Remember too, when you own a home, it is also a hedge against inflation for the future too. When you own a home,you will get a low fixed rate mortgage and your principal and interest payment will never change. Whereas rent will continue to go up over time.

In this market, it is important that buyers are been given all the information they need so they can make an informed decision about buying a home. My clients love these “Own vs Rent” reports, because it shows them all the financial benefits and different figures they need to see when making the decision to purchase a home.

If you would like to review one of these “Own vs Rent” scenarios like this example above, please feel free to contact me directly at 858-442-2686. I look forward to chatting soon.