Real Cost of Housing

real cost of housingOver the last several years, there have been a variety of factors that have led to a rental unit shortage especially with single-family homes. Due to this shortage, rents nationwide have been increasing. In most national markets, it costs considerably less to own than to rent.

Paying less  on a monthly mortgage to buy a home than you would pay for renting the same size and condition home can be a motivating factor for home ownership. Factor in the tax benefits, principal reduction and appreciation on your home and the difference between buying and renting is dramatic.

Here’s an example with a $250,000 home. We will suppose a 3.5 percent down payment with a 4.5 percent 30-year mortgage. Let’s assume an annual appreciation of 3 percent and that the homeowner is in a 25 percent federal tax bracket. Then we will add $1,200 annual maintenance and a current rent of $2,100 per month.

Now for the totals; house payment plus property taxes, PMI and insurance would be $1,834 per month. Factor in the stats above of principal reduction, appreciation, tax savings and maintenance costs and your net cost of housing is $673 per month. If you are renting, it would cost you over $1,400 more per month than owning a home. In the first year alone, the savings would amount to $17,000. That’s about twice the down payment required to buy the home.

real cost of housing

In my example above, the initial down payment of $8,750 grows to about $94,000 over seven years with appreciation of the home and amortization on your loan. One of the few investments available that allow these personal and financial benefits is owning a home.

Over the past seven years, borrowers have had many obstacles including the inability to qualify for a mortgage but since then new programs and relaxed requirements have allowed more people to become eligible to buy once again. The first important step is to talk with a trusted mortgage professional before you start looking for a home. Take the extra step to get pre-approved for a mortgage so you know what your price range will be. Then, as your REALTOR®, I can make recommendations based on experience from actual closed transactions.

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