Will I save money buying a home? I currently rent at $1300 per month. I'm looking at a $250,000 home. Explain?

I have rented for $1300/month for over 5 years. I am looking at a home for about $250,000. I probably can put about 5-20K down-payment or go with a 3% down. How will I save money if I buy? Will the first time mortgages for low income folks work. I earn about 50K per year but make my rent. Will the tax break help? Owning seems better. I understand if something breaks I pay but I'm just interested in the raw finances.

Let's say I sell in 5 or 10 years, even if I don't make back my sale price, isn't it better than renting ( I get something back right?) Please help.

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  • 1 decade ago
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    You will not save any money in the short term. As a matter of fact, in the short term it will cost you a *LOT* more money. Just the principal and interest on a $230,000 loan at 6% interest (assuming you have pretty darn good credit) would give you a payment of $1379. Depending upon where you are real estate taxes are between 0.5% and 4% of your home value per year (let's assume 1.5% for $3750 per year or another $313 per month). Depending upon where you live insurance could be $400-$2000 per year (let's guess about $600 or another $50 per month). PMI is variable, but let's estimate $100 a month for right now. Your payment is up to a whopping $1842 per month. Live somewhere there is a homeowner's association (condos are awful for this) and there will be another monthly fee, anywhere from $10-$300 a month.

    Taxes go up every year, so your mortgage payment will go up a little every year.

    The tax break may or may not help you out and it is certainly IS NOT a good deal. The best possible deal from a tax perspective will be year 1 when you pay the most interest. I'll assume you are single as it helps single people more than married people. In the first year of your mortgage you will spend $13723 in interest (awful, isn't it?). You will also pay real estate taxes that we estimated at $3750 per year. That means you will have $17473 of expenses related to your home that are deductible. Sounds pretty good to take this off of your taxable income, right? Not so fast... You would have qualified for the standard deduction of $5450 anyway, so you only save on the amount above and beyond the $5450 (this is why married people get hit more here as the married filing jointly deduction is $10900). So you can deduct $12023 on your itemized deductions. As a single person with a $50,000 income you are in the 25% tax bracket so the amount you save on taxes is 25% of the $12023 or $3006. You spent $17473 to save $3006. Not such a great deal, is it?

    Now you will pay closing costs on both ends of the buying and selling transaction. You have to pay a mortgage origination fee, a title search, etc. Expect to pay almost 3% of the cost of the home in closing costs. On the selling side it's worse as you have to pay the realtor's commission of ~6%.

    If the home price doesn't appreciate in 5 years you will be out almost 10% of the value that you paid in closing costs. If the value of the home goes down, you're hosed.

    Now you might wonder why anyone buys at all...

    There are advantages. If you catch an appreciating market you make the money! If you want to paint the walls chartruese and violet, you can. The biggest one is locking in the lower payment. If you looked at housing 10 years ago or 20 years ago or 30 years ago, you would see that locking in that payment (even though higher than equivalent rent at the time) is advantageous. You also build equity. After 30 years you own the house. Whatever it's value on the day you pay it off, you own it all. Equity builds slowly, as early on the interest is the primary portion of the payment (the initial payment on that mortgage was 151 of principal and 1228 of interest). The point at which it is half interest and half principal doesn't happen until year 22 on a 30 year mortgage.

    good luck!

    ps - don't buy a house as a short term deal (< 5 years) it won't work financially in your favor...

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  • Anonymous
    6 years ago

    I'm certain that you will find all financial answer at= financial-care.info-

    RE Will I save money buying a home? I currently rent at $1300 per month. I'm looking at a $250,000 home. Explain?

    I have rented for $1300/month for over 5 years. I am looking at a home for about $250,000. I probably can put about 5-20K down-payment or go with a 3% down. How will I save money if I buy? Will the first time mortgages for low income folks work. I earn about 50K per year but make my rent. Will the tax break help? Owning seems better. I understand if something breaks I pay but I'm just interested in the raw finances.

    Let's say I sell in 5 or 10 years, even if I don't make back my sale price, isn't it better than renting ( I get something back right?) Please help.

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  • 1 decade ago

    It's almost always better to buy but it depends on the area too. I'm in California and right now is a great time to buy. Prices are low and the potential for higher values later is good. You can fix the house up too and raise the value of your investment that way. It's hard to go wrong when you buy, especially when the market is depressed like now. You can get tax breaks but you can also write off a lot of stuff like interest paid, and repairs to the house, plus all the closing costs. Look at the market before the crash and see if prices were on the rise. That will come back in about 2-3 years.

    Remember that as the rents go up and up your mortgage will always stay the same or go down. When I bought my last house $500 per month was a bit high. But after 15 years the mortgage dropped to $350 and rents were up to $1,000 so it became a REALLY good deal later. You're locking yourself in time. While everyone else pays more and more you will pay the same as you do now.

    :-)

    Peace ... Happy Homeowners

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  • Lesley
    Lv 5
    1 decade ago

    You might not save any money at all per month, but in the long run, you would because you'd be building equity. Buying a $250,000 house with a 5-20k downpayment is not going to result in you paying less than $1300 per month taking taxes and insurance into account, as wells as pmi since that will be less than a 20% down payment. The tax deduction will help, that is a huge deduction. I am not sure if in your locale that you would qualify for a "low income" Mortgage as $50k is borderline on the threshold depending on the program. If you don't make back your sale price in 5-10 years you don't come out ahead. But given that a house appreciates on average 1-3% every year, you should come out ahead.

    Another thing to keep in mind, if you get a townshouse/condo there is going to be a monthly association fee on top of that mortgage.

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  • 1 decade ago

    There are many things you should consider before venturing into the wonderful world of owning a home.

    1. The real estate market - like the previous poster, make sure that you do your homeworks on what the values of the house should be.

    2. Buying would only make sense if you are staying there for at least 5 years. I would usually recommend longer, but if you do not stay for at least 5 years, all the fees that you pay to get the mortgage etc might not be properly recuperated by that time.

    3. Consider the additional costs and do a cost analysis - owning a house sometimes would occur additional responsibilities - maintaining the lawn, upkeep of the place, etc - when it is your place, you are responsible for the upkeeps.

    However, with everything being said, owning a place is a wonderful experience. You should definitely explore all the government or bank programs that help with low income people or even just first time homebuyers. They generally have pretty good programs for them (especially when it comes to the low down payments). Good luck!

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  • 1 decade ago

    You might want to check with a bank to see what kind of down payment they require. Putting more down will make your payments significantly smaller. I'd recommend at least 10% down.

    Source(s): Homeowner since 1984.
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  • Anonymous
    1 decade ago

    ItCompletely depens in what market you live in. now that our economy is suffering the prices of homes are still dropping. i suggest waiting until late this year. the market will drop about another 10%

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