topic Re: Why would a sane person purchase a home? in Mortgage Loans

Why would a sane person purchase a home?

Caliche — Sat, 29 Dec 2012 06:35:58 GMT

I got preapproved today and my lender sent a breakdown of my anticipated mortgage payment. On an FHA loan of $235,000 with a 3.5 percent down payment and an interest rate at 3.25.
Principal and interest-$1004
Home owner insurance EST $135
Property taxes EST $518 (2.65% of appraised value)
PMI $236
Total monthly payment $1894

Property taxes alone amount to $6000/year...over the course of 5 years it would cost $30000 in taxes alone just to sleep in the house.
I currently live in an RV that I own and pay $0 in property taxes and no pmi or home insurance.
After seeing the numbers I can't see where owning a home makes more sense than renting one.

Re: Why would a sane person purchase a home?

Mike_B03 — Sat, 29 Dec 2012 07:43:53 GMT

One word: Equity

What will you have after 30 years of paying rent? Nothing*. What will you have after 30 years of paying your mortgage? Probably a home worth at least $1,000,000 (if you bought at $235,000 today)

*Technically you may have savings if you put the difference you save between the rental payment and the mortgage payment however having a fixed mortgage payment will most likely be a lot more advantageous in 10-15-20 years vs renting which will increase with inflation over the same time persion.

The house is an investment. If you stay in it for the long term, you can cash out at retirement and then rent if you'd like and live off the equity from the house, or you could do a reverse mortgage.

Re: Why would a sane person purchase a home?

StartingOver10 — Sat, 29 Dec 2012 12:52:03 GMT

^^^I agree completely with Mike, however, not everyone is cut out to own a home or any type of property.

I have shown literally thousands of properties over my 3+ decades in the real estate business and there are people that simply don't maintain their property. And I am not talking about a minor mess. It is astounding to me that quite a few properties have extensive problems with roofs, windows, walls (both exterior and interior), and all of the systems (electrical, HVAC etc). I have seen people buy new homes and within 5 years the home has extensive damage and/or severe issues due to neglect.

Properties need regular maintenance. If the owner is not willing to do the maintenance, then really they are better off being a tenant so the landlord can keep the property in good condition. Each of us has to determine which path is right for us individually (or as a family). Buying a home is a financial commitment AND a commitment to the property and neighborhood too.

Re: Why would a sane person purchase a home?

Kozmo — Sat, 29 Dec 2012 13:39:27 GMT

In a weird sense of the way the OP makes a good point. Though, in this particular case.

$6,000 taxes are steep. Here in Michigan we pay roughly $1800 so it's not as unreasonable. Some states pay $300 in taxes

It's all about where you live.

Re: Why would a sane person purchase a home?

rckstrscott — Sat, 29 Dec 2012 14:02:07 GMT

Kozmo wrote:
In a weird sense of the way the OP makes a good point. Though, in this particular case.

$6,000 taxes are steep. Here in Michigan we pay roughly $1800 so it's not as unreasonable. Some states pay $300 in taxes

It's all about where you live.

I pay 8100 a year in taxes on a 180k purchased property. My mortgage is around 1800 a month.. I would LOVE to find the state that pays 300 in taxes? Hawaii maybe? haha I live in Illinois.. Chicago area,,

I get to write off all those taxes, plus my intersted and PMI on my personal taxes, and get quite a bit of it back..

Most homes in my neighborhood has seen dramatic increases in sales price in the last 6 months alone, combined with the fact I got my home at 100k less than the previous owner bought it. Most comparable homes in my neighborhood are going for about 230 now..

So I have already paid my mortgage down to about 160k left, if homes are selling around 230, well, I have equity now, which I wouldn't have if I had rented..

I can leverage that if I needed to, or what have you...

I feel perfectly sane.

-scott

Re: Why would a sane person purchase a home?

Kozmo — Sat, 29 Dec 2012 14:22:47 GMT

Southern states like Alabama or even Kentucky I believe have really low taxes.

Some of those states barely pay any. I talk to people all the time who have low property taxes.

Re: Why would a sane person purchase a home?

rckstrscott — Sat, 29 Dec 2012 14:27:53 GMT

Kozmo wrote:
Southern states like Alabama or even Kentucky I believe have really low taxes.

Some of those states barely pay any. I talk to people all the time who have low property taxes.

I know, its insane! My friend lives in Hawaii, his 400k townhome has 800 dollars a YEAR in taxes. I pay that every month haha

But hey, at least I have good schools my imaginary kids get to enjoy :P

-scott

Re: Why would a sane person purchase a home?

Caliche — Sat, 29 Dec 2012 14:29:07 GMT

Admittedly I was being a bit sensational with the thread title. I was just a bit overwhelmed by the fact that over a five year period a person living in a $235000 home will pay $30000 in taxes and an individual renting over that same period will pay$0

Re: Why would a sane person purchase a home?

chasmith — Sat, 29 Dec 2012 14:44:45 GMT

Taxes are part of the rent, you're just paying them in a hidden and non-deductible way.

In my case my total payment for principal, interest, taxes and insurance is $120.00 a month less than I was paying to rent a comparable (but older, shabby and not energy efficient) home, and I'm saving about $100/month on utilities. The landlord raised the rent $100/month for the next tenant and rents are going up in this area. So I'm about $300/month ahead.

My NACA mortgage is 100% 30 year fixed and I paid no closing costs so I have no opportunity cost for the closing costs and downpayment. For the time being my taxes and mortgage interest are tax deductible (until the politicians mess with deductions). So my (admittedly small to start) principal payments go to build equity, and I have a tax benefit. This means my effective housing cost is even less.

The home (new construction) appraised for enough more than I paid to cover closing costs if I were to need to sell. The neighborhood is showing improvements and price appreciation, even though the city as a whole isn't.

I agree that buying too much house on the theory it's an investment (or worse, that home prices only go up) is loony. But done carefully buying a home (as long as you don't foresee moving for five or more years due to closing costs) has locked in my housing expenses in the face of rising rents, and gives me the possibility of building equity by paying down the mortgage and price appreciation. Who knows how long this will last. I'm paying 2.92% on the mortgage, at 6% the numbers wouldn't be this favorable.

Re: Why would a sane person purchase a home?

rckstrscott — Sat, 29 Dec 2012 14:46:09 GMT

Caliche wrote:
Admittedly I was being a bit sensational with the thread title. I was just a bit overwhelmed by the fact that over a five year period a person living in a $235000 home will pay $30000 in taxes and an individual renting over that same period will pay$0

No, you pay it when you are renting a home. Your rent will be their mortgage + taxes + profit. Mind you, maybe not an RV, but everyone is paying taxes, some just more covertly than others. And you cannot write off your landlords taxes, which you are paying, on your personal income taxes but rest assured, your landlord is.

Taxes suck, but the taxman is going to get his. How you pay it is up to you! haha

My 8100k in taxes, plus my interest, plus my other deductions will cause me to get back 4500 more in personal income taxes this year. While not a wash, it is substantial and I am glad I made the purchase I did.

-scott

Re: Why would a sane person purchase a home?

tooleman694 — Sat, 29 Dec 2012 16:31:51 GMT

Here in Texas, it is much cheaper to buy a home then it is to rent one.

You will save hundreds every month, plus you get to write off the interest.

Re: Why would a sane person purchase a home?

Cloudlb — Sat, 29 Dec 2012 17:13:22 GMT

Many valid points in this thread. It all depends on what's right, what the housing is like in your area, and what makes sense for you. If you're happy living in a RV, then that's great -- save the money most of us would put toward housing for later, and live a light and mobile lifestyle. For me, safety would be an issue, as well as space for pets.

Here's my reasoning: I've lived in apartments my entire adult life, but my current apt. was no longer meeting my needs. When I started looking around for new apts., I realized that a apartment that had the things I was looking for would rent for several HUNDRED dollars more than I was currently paying. (We have a rental houseng shortage in my area.) Then I realized that I could qualify for a loan, had enough saved for a (minimal) down payment, and could probably find a house for the same payment as a decent apartment.

Taxes: The taxes took me by surprise, though. When you look on sites like Zillow and they say, "estimated mortage is $XXX" it looks way doable, but they don't include the taxes and insurance in there. Taxes in my city are crazy! Like, over $4,000 on a (say,less than 2,000 sf) $170,000 home. When I started looking therefore, and more importantly, started running the numbers, it was apparent that I could only afford a pretty crappy house. I was able to circumvent this by going a bit farther away than my core area, over a state line, where the taxes are much, much less (still only 12 miles/20 minutes away from work). Keep in mind, however, that most states that have lower taxes have state income tax. Texas (where I live now) does not; thus, higher property taxes. New Mexico (where I'm buying) does. However, even with that, I'm still coming out ahead, and the tax deductions will help a lot.

To the poster who commented about maintenance and upkeep: This is something I had to think hard about. I'm not handy, and I'm not a particularly neat person. However, I am determined to be all Martha about my brand new house and really learn about and keep it up. I learned this lesson with my vehicles, and I'm planning on doing everything I can to be a good homeowner. Maybe not the neatest, though .

I never thought I'd be able to own a home, and this will be a fulfillment of a lifelong dream. Achieving your dreams is worth more than mere currency.

. .

Re: Why would a sane person purchase a home?

tooleman694 — Sat, 29 Dec 2012 16:57:00 GMT

I have 3 kids, so living in an RV would really suck for us.

Might have been cool back when I was single. Now I need space for my kids and I.

The sanity we get from having space is worth every penny of the mortgage payment.

We moved from Cali to Texas a few years ago, and OMG the cost of living is very low. A 300k home here is amazing, the same home back in Cali would be over a million.

A 6 figure income in Cali would put us in a crappy home, so we moved lol.

Re: Why would a sane person purchase a home?

payingoffdebt001 — Sat, 29 Dec 2012 17:17:25 GMT

You cant compare renting an RV to buying a pricey house. Try comparing purchasing the same size and year RV to buying one at a good intererst rate.

I plan on buying a house for around $80,000 (TEXAS), with an avg down payment and current interest rates I'm estimating paying $800 or less monthly. And get a WAY better house than what I'm renting for that mo price.

My hope is to have a home paid off before I can no longer work. That way I dont have to pay rent with my retirment funds or social security check. So i can survive my old age. Also, should I need to pay for elderly care/nursing home I'm hoping my family can sell the house to help pay for such cost difference that medicaid wont cover. i dont want to burdeon anyone and want to prepare for my future. Buying a home can be like a little savings account.

Yes I fear losing my job and then not being able to pay my mortgage and end up with foreclosure - but I hope I play it smart and rent it out or sell it before that happens.

And all of this is just my opinion and thoughts on buying vs renting a resonable priced house.

Re: Why would a sane person purchase a home?

Mike_B03 — Sat, 29 Dec 2012 17:08:36 GMT

Wow some really high taxes in some places! Here in AZ, the general rule of thumb for property taxes is $1 per sq ft per year, so a 2,400 sq ft house will have $2,400 in yearly taxes.

Re: Why would a sane person purchase a home?

Caliche — Sat, 29 Dec 2012 17:13:43 GMT

I was just ranting a bit. I live in Tx and plan on going forward with the home purchase. I was just shocked that on an $1800 monthly payment that only $1000 goes toward the principal and interest. I guess once you factor in the mortgage interest deduction and no state income taxes the sting is reduced substantially

Re: Why would a sane person purchase a home?

Mike_B03 — Sat, 29 Dec 2012 17:18:33 GMT

It all balances out more or less. Again here in AZ, we may have low property taxes but it cost $1400 to register both of our cars for one year! Other states it's like $50/car. Somehow or another, the state gets their tax money.

Re: Why would a sane person purchase a home?

tooleman694 — Sat, 29 Dec 2012 17:26:59 GMT

In Texas yes we do have very high property tax but we also do not have state income tax.

The rate in my city is 2.5 percent for property taxes, im looking at 7500 a year for a 300k home.

I think we end up better off vs a state with state income + property tax.

Re: Why would a sane person purchase a home?

Cloudlb — Sat, 29 Dec 2012 20:47:14 GMT

One more point: as a homeowner, you can fix and upgrade your home the way you want. I live in a nice loft apartment, but it's 35 years old . . . with original 35 year old cabinets and wallpaper, and a leak in the roof they won't fix properly. Yes, they'll come and fix things for you, but there's only so much they will do, or let you do.

If you own a home; you can keep pets, and make your house pet friendly, too, which can often be a problem for renters; grow food, etc. HOA rules aside, of course. All the houses in my new subdivision have to be painted a shade of beige, beige, or beige. ugh! But I'm going to be a rebel and paint my door blue!

Re: Why would a sane person purchase a home?

samy2576 — Sat, 29 Dec 2012 21:08:32 GMT

Yeah you definitely can't compare living in an RV to a house. A house is permanent and nicer, and provides an investment opportunity. Where I live, prop taxes are only $1200 year and you can buy a nice house for 65-100k. Our mortgage will only be $280 a month versus the $900 a month we pay now in rent which is common here.