How much will I REALLY save by buying a home?

How much will I REALLY save by buying a home?

I am sure you have heard that renting is throwing away money and making your landlord rich, but do you understand how?  How different can a rent payment and mortgage be?  In reality sometimes it seems that there is always something to fix and no landlord to call.  By the time you pay taxes, insurance, yard maintenance, pest control, fix that leaky sink, replace the wobbly fan, is it REALLY cheaper to buy?

First let’s look at a rent payment in Denton.  The average rental went for $1,400 for a 3 bedroom, 2 bathroom, 1,750 sqft. home.  

The average house of that size sells for $130,000, which would cost:

              $655 (principal and interest)

            + $270 (property taxes)

            + $70 (homeowners insurance)

           ————————————–

            $1000 total monthly mortgage

On average, you are making $400/month for your landlord.  So assume you bought the house yourself.  You just saved $4,800 a year.  When you file the house as your homestead, you will save another $600 each year on property taxes and by itemizing the interest you pay on your income taxes, you will save another $2,000.

But let’s not forget the cost of maintenance.  The most cost effective step you can take is getting a home warranty when you buy your house.  You may even be able to get the seller to pay for the first year.  A policy will typically run less than $500 a year and when something fails on your house, all you owe the contractor is a small service call charge (similar to a copay at the Dr.).  The general rule of thumb for maintenance cost is 1% of your home’s value.

The bottom line:

Savings:

Difference between Mortgage /Rent: $4,800

Homestead   $600

Income tax incentive $2,000

                                                                                   Total Savings:$7,400

Costs:

Home Warranty        $500

Maintenance $1,300

                                                                                      Total Costs: $1,800

That is roughly $450 a month that could be added to your savings, used to pay off debt, or invested.  

On top of that is the equity you gain every year as you pay down your mortgage.  When you decide to sell, your equity becomes a healthy profit and a down payment on your next house.

Next week’s blog will cover down payment options, closing costs, what it costs to buy a house, and how to minimize those costs.