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Financial
Sep 24, 2017

The Numbers Don’t Lie: Buying Is Better Than Renting

Sponsored Content provided by Patrick Stoy - Mortgage Consultant/Owner, Market Consulting Mortgage

The numbers make a compelling argument for why it’s a great time to stop throwing money away on rent and become a homeowner instead.

The following example should help determine whether you should purchase a home or continue renting.

If you are currently paying $1,500 a month in rent, you will spend $90,000 over the next five years to cover the cost of housing.  Stop and think about that for a second. That’s nearly $100,000 in funds that are gone forever, money that could have been spent on a child’s education, a boat or a vacation home - money that met the same fate as the dinosaurs!

On the other hand, if you decided to put the same amount - approximately $1,500 per month - toward purchasing a home valued at $250,000, the long-term financial gains and emotional rewards could be substantially higher.

Believe it or not, it is still possible to buy a spacious, well-built home in Wilmington for $250,000. This may not be the case for much longer, as many experts are predicting that the influx of new residents projected to move here over the next few years will likely drive prices higher.

If the borrower has good credit, it should be possible under current conditions to obtain a loan at 4.25 percent - with no mortgage insurance - on a home purchased for $250,000 in an area without HOA fees. With a five percent down payment of $12,500, which could be a gift from a friend or family member, the remaining principal would be $237,500, and the payment would be about $1,537 per month, including taxes and insurance.  Assuming the property is in the city of Wilmington, where the current tax rate is 1.05 percent, the $1,537 would include about $218.75 per month for taxes, and approximately $150 per month for insurance.

After five years, the homeowner would have paid $92,226, plus the initial down payment of $12,500 and any costs associated with repairs and maintenance. That’s more than $100,000 in costs for the homeowner over five years. 

Yes, that is more than the cost of renting, but renting for five years does not leave you with a home at the end of the term, just a state of mental and physical exhaustion from treading water for so long.

Homeownership provides the dual advantage of principal reduction and price appreciation. In a five-year period, the homeowner would have paid down the principal by an amount of $21,832, assuming no extra payments were made. The remaining loan amount would be $215,668.

Taking a conservative estimate of price appreciation, two percent per year leaves the owner with a residence valued at $276,020 after five years have passed. The difference between the remaining principal - $215,668 - and the new value after five years - $276,020 - is $60,352 in home equity. 

If you subtract the initial down payment of $12,500, that leaves a net financial benefit of $47,852, achieved through principal reduction and appreciation.

It may seem complicated, but if you sold your home after five years and were suddenly holding a check in your hand for $60,352, it is highly unlikely you would regret the decision to stop being a renter. Of course, if you decided to stay in your home instead of selling, this would not be applicable. However, it could be possible to do a cash-out refinance and gain access to a significant amount of funds at a low interest rate. 

Even without considering the tax advantages associated with homeownership, which can be significant, it is clear that owning a home provides a wealth of benefits compared to renting. Of course, you should always consult an accountant or tax attorney prior to making a decision.

It’s worthwhile to point out there are many programs available that allow for a down payment that is lower than five percent. Though the initial costs of homeownership are higher, mainly because of the down payment, the financial gains accumulate and the underlying value of the investment remains. 

After a term of 30 years, the renter is left with nothing. After a term of 30 years, the person who took the leap and made the investment is left with a place to call home.

For a no obligation consultation about your options for purchasing a home, give me a call at the number below. 

Patrick Stoy (NMLS Numbers 39527 and 39166) has 18 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.
 
 

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