This is the second in a series on Why Buy In Toledo and Northwest Ohio. In the first article it was 
mentioned that there are compelling reasons to buy a home in Toledo and Northwest Ohio and our local board - The Toledo Board of Realtors put together a web site to highlight some of them.
Today, I want to bring to your attention a handy little Rent vs. Buy calculator that can assist a home buyer figure out if it makes sense to buy or continue to pay a landlord. All you have to do is plug in the purchase price, taxes, insurance as well as your current rent payment, the tax bracket you are in as well as the home appreciation rate.
Some of the items you will be able to figure out right away, but there are others that might need to be researched. To assist you I have inserted several links and "rules of thumbs" that might help; they are listed as follows:
- Homes search - Here not only will you find the price of homes for sale but also their property taxes.
- Income tax rate - 2008 Tax Rate Schedules.
Rules of Thumb (for Toledo & Northwest Ohio)
- Property tax rate - 1.5%
- Loan Origination - 3.5 to 5%
- Other Closing Costs - $3000
- Home Insurance Rate - .5%
- Home Appreciation - Toledo and Northwest Ohio is what I term "The Little Engine That Could". We haven't seen significant run ups in property values, but we haven't seen property values fall of the table either. Even with foreclosure rates at historical highs, in 2007 we had an appreciation rate of .063%. As we work our way through this current economic slowdown,it's my opinion we should see this appreciation rate improve to 1 to 3% annually.
Below, I've also included a list of definitions to assist you in making sense of it all. I encourage you to try the calculator out and if you have any questions, or I can be of assistance to you or a friend please contact me. I'd be glad to help!
Definitions
|
Price of home - Purchase price of the home you wish to buy. Cash on hand - Cash you have for the down payment and closing costs. Interest rate - The current interest rate you can receive on your mortgage. Term in years - The number of years over which you will repay this loan. Property tax rate - Your property tax rate. 1% for a $100,000 home equals $1,000 per year in property taxes. Home insurance rate - Your homeowner's insurance rate. 0.5% for a $100,000 home equals $500 per year for homeowner's insurance. Loan origination rate - The percentage the lending institution charges for its origination fee. 1% for a $100,000 home equals $1,000. Points paid - The total number of points paid to reduce the interest rate of your mortgage. Each point costs 1% of your mortgage balance. Other closing costs - Estimate of all other closing costs for this loan. This should include filing fees, appraiser fees and any other miscellaneous fees paid. Total closing costs - Total upfront costs to close your loan. This is the sum of the loan origination fee, amount paid for points and other closing costs. Total for down payment - Total funds remaining for down payment. Mortgage amount - Total amount of loan. Investment return - The rate of return you could receive if you invested your closing costs and down payment instead of purchasing a home. The actual rate of return is largely dependant on the type of investments you select. From January 1970 to December 2003, the average compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 11.7% per year. During this period, the highest 12-month return was 64%, and the lowest was -39%. Savings accounts at a bank pay as little as 1% or less. It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. Monthly rent payment - Amount you currently pay for rent per month. Income tax rate - Your current marginal income tax rate. Expected inflation rate -What you expect for the average long-term inflation rate. This has been calculated by the Consumer Price Index from 1925 to 2002 to be 3.1%. Inflation rate is used to adjust amounts subject to annual increases. These amounts include rent, insurance and tax payments. Home appreciates at - Annual appreciation you expect in the home you are purchasing. Future sales commission - The percent of your home's selling price you expect to pay to a broker or real estate agent when you sell your home. House payment - Total of principal, interest, taxes and insurance (PITI) paid per month for your home. Insurance includes Principal Mortgage Insurance (PMI) and homeowner's insurance. Principal payment - Total of principal paid per month on your mortgage. Tax savings -The value of the tax deduction you receive on your mortgage's interest and home's property taxes. For example, if you have $900 in interest and $100 property taxes per month, the value of the tax deduction would be $280. (At a tax rate of 28%). Net house payment - Your house payment minus the value of the tax deduction and principal payment. Net home price -Net selling price of your home after subtracting any sales commissions. Monthly PI - Monthly principal and interest payment. Monthly PMI - Monthly cost of Private Mortgage Insurance (PMI). For loans secured with less than 20% down, PMI is estimated at 0.5% of your loan balance each year. |
Comments(3)