@Anonymous wrote:
You do realize that at those rates and going with 100% financing, it will be about 5 years before you actually show any real equity, even if your house slightly appreciates, right? For the first couple of years, most of your entire payment goes to interest only and your escrow account. Very, very little hits your principal. And you have started with to on to get you closer to break even and equity. Then when you sell, you need to factor in paying about 10% of the expected sales price to agent fees and closing costs. So, for example, on a 200k house, you will pay out about 20k to close the deal (plus any seller concessions you would give after inspection, etc) before your loan is paid off. Of course, this doesn't factor in maintenance costs, rises in taxes that seem to happen every year, etc.
dont get me wrong, owning a house can be great, but the "but I'm building equity" arguement doesn't really fly unless you expect to live in the house for the long term (8-10 years, for example).
^^^classy, this isn't always true. In some markets it is true. OP has to find out what is happening in his market. One thing for sure, if you rent you never build equity. Not everyone wants or needs to own a home, it is a personal decision.
But to say that you always have to live in the house long term (8 to 10 years) is not accurate. You do have to take into account acquisition costs and selling costs. Your estimate is high at 10% but 8% to 8.5% is a realistic figure IME.
As to where you would be at the end of 5 years - you forgot to add in appreciation. I know we have just come through the Great Recession where there was virtually no appreciation in most parts of the country, but appreciation is back now. Several of my clients that purchased in 2012 are selling now and they are walking out with $70k to $100k after expenses. In fact, their total cost to acquire the property was approx $11k to16k (depending upon the deal negotiated and the purchase price). You can't count on appreciation as we have seen in the 2007 to 2011 recession but you really can't ignore it either.
You make your deals on the purchase - if you negotiate well going in you end up with equity at the end, unless the financing is poor or the economy tanks. It is a risk/reward process and it isn't for everyone.
