It is cheaper to buy a home than to rent one in 39 of the nation's 50 largest cities, according to a quarterly report released this week. Trulia's rent vs. buy index compared the median list price with the median rent on two-bedroom apartments, condominiums and townhomes listed on Trulia.com as of April 1, 2011, in the 50 most populous cities in the U.S. While 72 percent of the cities favored buying in the previous quarter's report, 78 percent favored buying in this latest report.
My own search of the multiple listed properties here in SW Florida and specifically in Englewood show pretty much the same thing. In Englewood, the average rental per month—per square foot—is $1.33. The average size of a home that is for rent is 1,345 square feet; the average rental therefore is $1,777 per month.
Also in Englewood, the average house offered for sale has an asking price of $283,769
Suppose you wanted to buy a house and had a budget of no more than $1,777 per month, (which is the amount it would cost you to rent “the average” house in Englewood), what would your expenses be, and how far would that rental budget go in supporting a mortgage?
First things first, you will probably have little luck in getting a mortgage unless you have: A.) Good Credit and B.) A meaningful down payment. Gone are the days where if you could exhale on a mirror and make a vapor trail, you got the loan. Gone are the days where you borrowed your down payment. But OK, let's say you have the down payment and it's 20 % of the cost of the property.
For those of you who have forgotten your high school percentages, if we were looking at the “average house for sale in Englewood” at $283,769, your down payment would need to be $56,754.
There are ways to get the down payment into more like a 3% range, but there's not room here to explain that and I would suggest that if you would like to try a smaller down payment, cultivate a friendship with a mortgage broker and see what comes of that.
Meantime, if you have your down payment at the ready, it will only take a few weeks to have yo in that new home. And with your down payment credited against the sale price, your mortgage will be $227,016. (That is the amount the principle and interest will be computed against) And at 5% which is a nice round number, your monthly payment for a 30 year fixed mortgage would be $1,219.08.
OK, as they say on late night TV, there's more. Your mortgage lender will demand that you carry insurance, which may run in the 2500 to 3000 range (per year). So your monthly charge there would be about $225, and your monthly taxes I am estimating at $350.
So the Grand Total (We call this the PITI, or principle, interest, taxes and insurance) would be $1794.
Close to the target of $1,777 you would say, but not an actual cigar? Well don't forget the last step in the computation. And this is a huge deal. For those of us who itemize our taxes, you can deduct all the interest you pay on your mortgage from your income—it actually reduces the amount of money the government says you made, call it your homeowners bonus. But because the interest amount you pay changes each year, based on what you've paid so far and what you still owe, the first six or seven years are about 95% interest, and so all of that is deductible.
Here's how we look at that, your monthly interest payment is very close to $1,100. So over a 12 month cycle, you are paying $13,200 in interest and if you are in the 25% tax bracket, this will lower your taxes by nearly $4,000. Save you that much, get you a return of all of that plus what you were expecting too. See what I mean? It's a huge deal.
“With home prices nearing a double dip and more foreclosures expected to flood the housing market over the next two years, the decision between renting and buying a home across most of the country has clearly moved in favor of buying," said a Trulia spokesperson.
As we head into the summer buying season, those looking to buy a home should be encouraged by improvements in the market and feel optimistic about their chances of finding an affordable home -- much more so than in previous years. My opinion: it is a good time to buy. And homes have really not been this inexpensive in five or six years.
Dane Hahn is a real estate professional with Tarpon Coast Realty in Englewood, Sarasota and Boca Grande. He can be reached at dane.hahn@gmail.com or by phone at 941-681-0312. You can check out his website at http://www.danesellsflorida.com/
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