There were 2 couples interested in purchasing a home. One couple wants to rent for a year before buying, and the other couple wants to buy now. Both were looking at identical homes for comparison in this scenario.
Couple A found the perfect pool home valued at $200,000 for rent at $1500 per month. They gave a $1500 security deposit, and a non-refundable pet deposit of $350. The year of living in that home will cost them $18350. They originally qualified to purchase a $200,000 home. After a year, and home values increasing, and interest rate increase, they could now only qualify for a $185,000 home. That same $200,000 home today cost $220,000. They lost $35,000 in buying power, totaling a net loss of $53,350 for waiting a year.
Cost
$18,000 Rent
$ 350 Pet deposit
$35,000 Loss in buying power
$53,350 Net loss for the year
Couple B found a $200,000 home, and offered $195,000 with the buyers contributing $5000 towards closing cost. Couple B put $10,000 down on the home, and covered the extra $1000 in closing cost. The mortgage payment including insurance and taxes is $1295 per month. At the end of the tax year, the couple B gets a federal tax deduction of $14,300 for mortgage interest payments, and a $2500 deduction for property taxes, both saved the owners $2300 in tax savings. The home is also valued at $220,000 at the end of the first year, earning them $20,000 in equity. At the end of the first year, couple B paid $4200 for their first year in the home.
Cost Return on Investment
$10,000 Down payment $25,000 Increase in value
$1000 Towards Closing $ 2,300 Tax Savings
$15540 Payments $27,300 Total return on Investment
$26,540 Total
$ 26,540 Invested
$-27,300 Return on Investment
= + $760 Total expense for housing.
Which couple made the better financial decision for their housing?
This Scenario is an estimate only of cost, and not on scientific formulas.
