Right now is a GREAT time to get a GREAT deal on a new Home! Take advantage of this Buyer's Market and capitalize on the benefits of being a Home Owner! Look over this analysis, and call The Fauscett Team if you have any questions or to help get you started on the path to finding your new home!!
COST OF NOT BUYING A HOME
1) Rent Lost
Rent = $1,200/MO The average person takes 30 days to buy.
If you wait 6 months, you will pay you landlord ……………….. $6,000
2) Rate Change
If today’s rate is 5.5% on a 30 Year fixed rate mortgage, assuming a $200,000 sales price with 5% down:
Your payment will be….$1,073 per month…
The following shows what happens to your payment if your rate goes up by the time you buy (in ½% increments)
Rate Pmt Loss/mo Cost/YR Cost 7/YRs Cost 30/YRs
6.0% $1,133 $60 $720 $5,040 $21,600
6.5% $1,194 $121 $1,452 $10,164 $43,560
7.0% $1,256 $183 $2,196 $15,372 $65.880
This number you must look at from the long term picture. If you wait 6 months to buy a home, it is possible (or even likely) that the rates will be up .5%. The cost/loss to you IS NOT $60 per month. The cost is $60 per month times however many months you own the home. The average American owns a home 7 years, so that loss equals $5,040. If you keep this home as a rental property (a great idea especially for your first home and when rates are this low) then the loss is times 30 years, or $21,600. Of course if you look at it like a good financial planner would, your loss is not simply the $21,000 but it’s that amount times the opportunity cost of lost interest had you invested that money yielding 5%-10% appreciation compounded annually. This of course multiplies the loss to 2 to 3 times the actual cash loss!!!!
And if you are waiting until “next year” to buy that rental property…”Hello,…McFly!?!”
3) Appreciation Lost (Assuming a $200,000 sales price)
Appreciation Per Month 6 Months 1 year
3% $500 $3,000 $6,000
5%* $833 $5,000 $10,000
6% $2,000 $6,000 $12,000
8% $1,333 $16,000 $32,000
10% $1,666 $20,000 $40,000
*Metro Atlanta typically appreciates at an average rate of 4%-5% per year. Atlanta was predicted to appreciate 24% over the next 5 years (CNN.com “Top 10 Places to buy-NOW”)
4) Tax deduction/interest write off
This is the trickiest of the calculations because everybody’s tax situation is different, and the tax code is a tad bit complicated. But as a general rule, you can write off 100% of the interest portion of your payment. And if you didn’t know, the interest portion is MOST of the payment (for the first few years anyway)
For example: using the examples above, with a $1,073 per month payment ($190k loan @ 5.5%), the interest portion of the first payment is around $850 per month. So that’s the write off that you will NOT be getting per month until you buy. Most people buying this price home are in the 28% tax bracket plus 6% state. That means the actual cash loss is the monthly payment times your tax bracket. Let’s say 33%. So in this example, you are losing $280 per month CASH in tax deduction that you are not receiving. That’s not even taking in to account that writing off $10,200 per year ($850 times 12 months) would probably take you in to a lower tax bracket; consequently, you would pay taxes at a lower rate…… (again, I am not an accountant nor do I ever want to be one; so, consult a CPA regarding your particular tax situation)
So,….Your “lack of deduction loss” is appx.…. $250- $300 per month
SUMMARY: IF YOU WAIT 6 MONTHS TO BUY, YOU ARE LOSING BETWEEN $8,000 AND $15,000 IN THAT TIME ALONE! IF YOU MISS TODAYS RATE, IT COULD COST ANOTHER $15,000 TO $100,000 MORE OVER THE LONG HAUL.
One last point: Affordability and lifestyle
I do not recommend ANYONE BUYING A HOME that they can not afford, or that will make them ‘house-poor’. I recommend that you should be fairly conservative. This means add up your PITI (total mortgage payment with taxes and insurance added in) and your payment should NOT be above 30% of your GROSS monthly income (before taxes).
Remember this, though: If you ‘wait’ to buy, that $200,000 home will most likely be $210,000 next year (5% appreciation). So the question you must ask is, “Is my income going up 5% per year?” If not then you will be able to afford LESS in a year than you can now.
**This is not intended as an earnings claim on purchasing real property. Past results are not in indication of future performance. Please consult your tax advisor. (ask about the W-4 form).