With home prices in Delaware County and the Philadelphia area becoming more affordable, it may be time to think about buying a home instead of renting. The following post explains the principals of cash flow and how it may be possible to buy a home similar to the one you are currently renting, for less than what you are paying in monthly rent.
For additional help in analyzing your decision, you may want to run some numbers in this rent vs. buy calculator or take a look at these additional calculators and tools.
And of course, feel free to contact me directly at (888) 891-7704, if you have any other Pennsylvania Mortgage related questions.
Via
Fred Chamberlin - Eugene/Springfield's #1 Experienced FHA Mortgage Consultant:
All of us on Active Rain want the Real Estate market to turn around. We want to see homes selling. We want people to be taking out mortgages. But, we also want to have our clients well served by what we do and in this, I want to suggest Cash Flow as a method of determining suitability.
By this, I mean if you are a renter or have a renter for a client, is it really a good move for you and them to think of buying in this market. In many cases, the answer is yes. In some, the answer may be no.
So, how do you determine the cash flow of a home? One of the easiest tools is the rent vs buy mortgage tool. If you don't have access to one, feel free to give me a call and I would be happy to run the numbers for you. Today, I want to run a few numbers just to give you a clue about this process.
Let's assume the following (this would definitely be area specific):
- Current rent - $1000 month
- Comparable home price - $175,000
- Normal yearly rent increase - 5%
- Time horizon (3 or 5 years) - 5 years
- Appreciation value of home - -1% per year (bad case scenario)
- Tax bracket - 25%
- Down payment - 3% (FHA)
- Mortgage Ins. - .5%
- Interest Rate - 6% (only as an example)
- Property Taxes - $2,000
- Insurance - $300
Using these calculations, your net difference (between average rent over 5 years and after tax mortgage payment) is $72 to the purchase side. Also, even with a negative appreciation, at the end of 5 years, you will owe less than the property is worth. The chance of the market being negative appreciation for 5 years would really surprise me. So, basically, you are getting the same home for less money per month.
Needless to say, if the price of the home goes up or the rent goes down, these numbers would reverse. But it really does make sense to see if it is worth owning your own home. Down payment makes a huge change in the calculations. Just remember, this is only an example, not final numbers for anyone.
Also, the main reason for owning a home is shelter. Investment value is great but for your personal residence, shelter is the number one reason for having a home.
Authored by Fred Chamberlin, a Senior Mortgage Consultant, Eugene/Springfield Oregon, 541-342-7576.
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Michelle - Well, that isn't stealing. Well done re-blog. I like your calculators that you added. Great job and thanks. Fred.