I thought I knew the answer but being a curious and somewhat analytical guy I wanted to do the study to verify that it is actually cheaper to buy a home than to rent.
For sure if you can find a HUD home in your price range then you can buy a home for $100 down payment and I don't know of any landlords letting people move in for $100 security deposit. Even better is if the property can qualify (and the buyer) for a Rural Development loan. Those loans can finance 103% of the sales price of the property so long as it appraises for that amount.
But what about a home that isn't qualified for these and they need just a simple FHA mortgage requiring about 3.5% down payment.
Then lets look at the typical single family rentals available to a typical family in Franklin.
This shows that for an average home in Franklin they would pay about $2500 a month in rent. Move-in would likely cost them a security deposit and first months rent so they need $5000 to move in.
Now lets see what a similar size home would sell for in Franklin.
This shows the average home is about $403,000 to purchase. $14105 is the 3.5% down payment, so I will give you that, you do need about 3 times more cash to move into a house of this size unless you can find one that is a HUD home.
However, lets now look at the monthly payments vs the rent. My mortgage ESTIMATOR on my iPad says that at 3.5% a 30 year fixed mortgage the principal and interest are only $1746. Now typically the landlord is paying the HOA and taxes but on a purchase you have to pay that so lets add $200 a month for the property tax and $95 for HOA. We will have to add on Mortgage Insurance Premium, which if you read my last blog you know is about to increase, of lets estimate $215. That rounds the payment out to $2256 which is about $250 less per month than the average rental.
Tax benefit of a mortgage. At least under current tax laws (consult your CPA or tax advisor), the interest you pay on your primary residence is tax deductible. What does that mean? Well it means that if you look at an amortization schedule of your mortgage payments (or simply add up all the interest paid on the mortgage in the first year) you will have paid $13492 in interest. Take that number and multiply it by your effective tax bracket. Lets say it is 30% tax bracket. Then 30% of $13492 is $4048 in savings. That is $4048 of your hard earned dollars that you get to keep from taxes. If you now divide your mortgage payment of $2256 into that number you will have the number of months that you stayed in your purchased home for "FREE". I get 1.8 months in tax savings. Ask your landlord to give you 1.8 months of free rent in November and December next year and see how that works out for you.
Still worried about the down payment. Well look at it like this, the $4048 in tax savings annually will replace your down payment nest egg in about 3.4 years, so figure out a savings plan now and get your home now as the low interest rates make this equation, better for the buyer right NOW!
Contact a member of The Grumbles Team or your CPA to get advice on if this plan makes sense for you and your family. Because as I started with this blog in the first place, It is better to buy than to rent and all the REALTORS saying that are not just saying it because they earn a living in the real estate sales business but because it is TRUE!
The Grumbles Team is our family serving your family with your real estate needs in Franklin, Tennessee 615-587-5843.
EXIT Realty of the South | 1227 Lakeview Dr. Suite 1 | Franklin | TN | 37067 | 615.550.5555
Williamson County Real Estate Agent
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