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Valued Member
Caliche
Posts: 46
Registered: ‎04-14-2011
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Why would a sane person purchase a home?

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.

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Mike_B03
Posts: 1,146
Registered: ‎11-30-2012
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Re: Why would a sane person purchase a home?

[ Edited ]

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. 

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StartingOver10
Posts: 4,422
Registered: ‎03-06-2010
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Re: Why would a sane person purchase a home?

^^^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.

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Kozmo
Posts: 320
Registered: ‎07-08-2012
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Re: Why would a sane person purchase a home?

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.
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rckstrscott
Posts: 2,660
Registered: ‎04-25-2011
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Re: Why would a sane person purchase a home?


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

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Kozmo
Posts: 320
Registered: ‎07-08-2012
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Re: Why would a sane person purchase a home?

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.
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rckstrscott
Posts: 2,660
Registered: ‎04-25-2011
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Re: Why would a sane person purchase a home?


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 :smileytongue:

 

-scott

Starting FICO Score: 10/10: TU 498 | EQ: 502 Current FICO Score(lender pull): 09/14: TU: 784 | EQ: 752 | EX: 784
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Valued Member
Caliche
Posts: 46
Registered: ‎04-14-2011
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Re: Why would a sane person purchase a home?

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

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chasmith
Posts: 1,062
Registered: ‎05-26-2010
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Re: Why would a sane person purchase a home?

[ Edited ]

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.

 

 

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rckstrscott
Posts: 2,660
Registered: ‎04-25-2011
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Re: Why would a sane person purchase a home?


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

 

 

Starting FICO Score: 10/10: TU 498 | EQ: 502 Current FICO Score(lender pull): 09/14: TU: 784 | EQ: 752 | EX: 784
Collections Removed: Hunter Warfield, CBE Group, Merchants Credit Guide, EOS-CCA, Enhanced Recovery, Portfolio Recovery, UCB, American Collection Company, Medical Business Bureau, Jefferson Capital, Credit Portfolio Associates, FCO, LVNV, Convergent, Armor Systems
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