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Old 12-03-2017, 07:22 AM
 
4,884 posts, read 5,379,330 times
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My wife and I have been flirting with the idea of purchasing our first home. Both of us are in our late 30’s and have no children, nor do we plan to. We are currently renting in a wonderful gated community in Florida’s gulf coast. We pay $1100/month for a 2br, 2bath, 1200sq ft apt. Amenities include 2 swimming pools, jacuzzi, dog park, fitness center, car garage, and storage room. We can easily afford the rent as we split everything 50/50 and are able to save/invest excess cash.

We’ve been doing some mortgage interest calculations, and it turns out that on a 250k home, we will pay over $100k in interest at 3.75% over 30yr years. Call me crazy, but I just cannot justify that. Is there something that I’m just not understanding? On top of that, you’re on the hook for taxes, insurance and basic maintenance and repairs of your home.

The only benefit that I can see from owning a home is that you have more private space and nobody can evict you (unless you stop mortgage or tax payments). Other than that, I dont see the upside.

I see the argument all the time of how “you’re just throwing money away by renting as you build no equity and are just lining someone else’s pockets”. Well aren’t you lining the pocket of these banks buy paying an exhorbanant amount of interest over the years?

Why shouldn’t I just keep my $50k (20%) down payment in the bank and continue to save and invest while paying an affordable rent instead of locking myself into a long term loan paying an insane amount of interest?

Again, we are new too all of this and are just looking for some information on how buying a home rather than continuing to rent would be financially beneficial to us because I dont see it.

Thanks...

Last edited by louie0406; 12-03-2017 at 07:43 AM..
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Old 12-03-2017, 04:42 PM
 
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Are you taking into consideration that your rent will likely go up over time, whereas your mortgage payment will not? Where will you be financially in 10 years if your rent has gone up to $1600? That's $7,200 more a year than you're paying now, so that will cut into your savings/investing. Will you just start chasing rent (and paying for moving expenses every two years or so) to keep your rent low?

Another consideration is that, at least for now, your mortgage interest and real estate taxes are tax deductions. Your rent is not tax deductible.

Home ownership is not for everyone, but I'm one who believes in the many benefits of home ownership!
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Old 12-03-2017, 05:31 PM
 
Location: Gettysburg, PA
1,505 posts, read 1,462,598 times
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Quote:
Originally Posted by louie0406 View Post
My wife and I have been flirting with the idea of purchasing our first home. Both of us are in our late 30’s and have no children, nor do we plan to. We are currently renting in a wonderful gated community in Florida’s gulf coast. We pay $1100/month for a 2br, 2bath, 1200sq ft apt. Amenities include 2 swimming pools, jacuzzi, dog park, fitness center, car garage, and storage room. We can easily afford the rent as we split everything 50/50 and are able to save/invest excess cash.

We’ve been doing some mortgage interest calculations, and it turns out that on a 250k home, we will pay over $100k in interest at 3.75% over 30yr years. Call me crazy, but I just cannot justify that. Is there something that I’m just not understanding? On top of that, you’re on the hook for taxes, insurance and basic maintenance and repairs of your home.

I see the argument all the time of how “you’re just throwing money away by renting as you build no equity and are just lining someone else’s pockets”. Well aren’t you lining the pocket of these banks buy paying an exhorbanant amount of interest over the years?

Why shouldn’t I just keep my $50k (20%) down payment in the bank and continue to save and invest while paying an affordable rent instead of locking myself into a long term loan paying an insane amount of interest?

Again, we are new too all of this and are just looking for some information on how buying a home rather than continuing to rent would be financially beneficial to us because I dont see it.

Thanks...
Not sure how others would justify it, but it wouldn't be justifiable for me. If I couldn't pay it off quicker than 30 years to avoid the interest, it wouldn't seem worth it. Owning my own home is a huge draw for me so that I can do home improvements as well as painting and stuff like that. But for people who aren't into that kind of stuff, I would think renting would be more economical if you have to pay over 100 thousand in interest (not to mention as you said repairs and property taxes--which in some areas are somewhat on par with rent costs!).

For me I bought a much cheaper house than I could afford. That's the only way I'd do it. Sure I could have taken out a loan for 300K+, but that would put me in the boat of having a mortgage that stretched my budget to where I couldn't pay any more each month. The only way I'd take 30 yrs to pay this mortgage is if Lord forbid something were to happen; unfortunately that is the risk everyone takes with mortgages which is why the lenders (or they should at least so we don't run into the same problem as before with a huge number of people defaulting) scrutinize people applying for mortgages so that they only take those who are considered low risk.

Yeah, I wouldn't do it either for that kind of interest cost. If I couldn't get a cheaper house I'd wait to save up more money so I wouldn't have to take out such a high mortgage.


Quote:
Originally Posted by louie0406 View Post
The only benefit that I can see from owning a home is that you have more private space and nobody can evict you (unless you stop mortgage or tax payments). Other than that, I dont see the upside.
You can rent homes too. That's what I did in North Carolina. Had a lot of space and privacy. It was great! (the landlord even let me paint the rooms which was super awesome!). You do still have to worry if the owner like wants to sell the house, but there's a related upside with renting that you don't have in owning: if your neighbors suck and are like real annoying you can just pick up and move in a reasonable amount of time. If you bought your house you're pretty much stuck with it if you got bad neighbors (it's not as easy to get out of it).

Last edited by Basiliximab; 12-03-2017 at 05:41 PM..
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Old 12-03-2017, 05:54 PM
 
Location: on the wind
3,442 posts, read 1,234,504 times
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Well, not that I am a financial genius or anything close, but sometimes you can come out ahead by buying, paying that interest over years. There was a tax advantage for the first 15 years of the 30 year loan. During the mortgage I had no worries about rents, my routine expenses were fairly predictable, and I built the house into a place I loved and enjoyed. There was a lot of satisfaction there, even though it wasn't strictly financial. Money doesn't dictate all the good decisions in life. But then I didn't buy too much house either. The mortgage was very reasonable (close to or less than some local rents) and less than what some bank might have qualified me for. The house suited what I needed at the time.

I recently sold that mortgaged home, settled the small balance left on the loan, and used the proceeds to buy another house on a larger lot in a town I enjoy. I now own my new home outright because of that previous mortgage. Could I have saved enough to buy this house outright otherwise? Kind of doubt it.

Last edited by Parnassia; 12-03-2017 at 06:20 PM..
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Old 12-03-2017, 06:06 PM
 
991 posts, read 572,563 times
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even if you rent you are paying for taxes, insurance and repairs but it's called rent.
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Old 12-03-2017, 06:08 PM
 
Location: USA
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This is why I got a 15 year mortgage instead of a 30 year, and the monthly payment wasn't THAT much more. The interest savings were considerable.
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Old 12-03-2017, 06:17 PM
 
Location: The Woods
16,404 posts, read 21,200,925 times
Reputation: 8341
Quote:
Originally Posted by louie0406 View Post
My wife and I have been flirting with the idea of purchasing our first home. Both of us are in our late 30’s and have no children, nor do we plan to. We are currently renting in a wonderful gated community in Florida’s gulf coast. We pay $1100/month for a 2br, 2bath, 1200sq ft apt. Amenities include 2 swimming pools, jacuzzi, dog park, fitness center, car garage, and storage room. We can easily afford the rent as we split everything 50/50 and are able to save/invest excess cash.

We’ve been doing some mortgage interest calculations, and it turns out that on a 250k home, we will pay over $100k in interest at 3.75% over 30yr years. Call me crazy, but I just cannot justify that. Is there something that I’m just not understanding? On top of that, you’re on the hook for taxes, insurance and basic maintenance and repairs of your home.

The only benefit that I can see from owning a home is that you have more private space and nobody can evict you (unless you stop mortgage or tax payments). Other than that, I dont see the upside.

I see the argument all the time of how “you’re just throwing money away by renting as you build no equity and are just lining someone else’s pockets”. Well aren’t you lining the pocket of these banks buy paying an exhorbanant amount of interest over the years?

Why shouldn’t I just keep my $50k (20%) down payment in the bank and continue to save and invest while paying an affordable rent instead of locking myself into a long term loan paying an insane amount of interest?

Again, we are new too all of this and are just looking for some information on how buying a home rather than continuing to rent would be financially beneficial to us because I dont see it.

Thanks...
If your rent never goes up a cent, 1100 a month for 30 years is 396,000 dollars you'll pay in rent. Obviously rent is going to go up so you'll pay even more. Think about what rent was 20 years ago. So you'll pay more to rent and have nothing to show for it. You can sell a house and recoup at least part of your investment even if the market drops.
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Old 12-03-2017, 07:20 PM
 
835 posts, read 357,533 times
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It depends. We are trying to secure a home after renting, and in this area rents are about 40% more expensive than your typical mortgage on the exact same property. We also love customizing our residence, and I hate worrying about my kids damaging someone else’s property, which is a constant concern even though they’re careful.

We are building exactly what we want and were planning on renting while building, but even carrying a land loan, a construction loan, AND a mortgage on a small home we are only a little over what our rent is monthly, and with no equity or freedom to modify the home.

The downside here is primarily the lack of quick mobility and potential investment losses having capital tied up in a lower performing asset than a higher performing one, like stocks. For us they’re irrelevant though, as we need a place to live and it’s good financial sense for us.

Renting vs buying is NOT straightforward. At all. In some situations renting absolutely makes good financial and personal sense and it sounds like it does for you. But that’s by no means universal
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Old 12-03-2017, 08:08 PM
 
Location: Phoenix, AZ
1,108 posts, read 417,572 times
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Quote:
Originally Posted by arctichomesteader View Post
If your rent never goes up a cent, 1100 a month for 30 years is 396,000 dollars you'll pay in rent.
That's a good point.


In the OP's example, buy a house for $250,000 and add $100,000 over 30 years and you've paid $350,000 and you own it free and clear.


Pay 1100 per month rent for 30 years and you've paid $396,000 and you don't own it.


Seems like home ownership is a no-brainer to me.


I've owned my home free and clear for 19 years. You can't imagine how good it feels not to make mortgage payments or pay rent.
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Old 12-03-2017, 08:57 PM
 
4,884 posts, read 5,379,330 times
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Quote:
Originally Posted by adjusterjack View Post
That's a good point.


In the OP's example, buy a house for $250,000 and add $100,000 over 30 years and you've paid $350,000 and you own it free and clear.


Pay 1100 per month rent for 30 years and you've paid $396,000 and you don't own it.


Seems like home ownership is a no-brainer to me.


I've owned my home free and clear for 19 years. You can't imagine how good it feels not to make mortgage payments or pay rent.
While true, you’re not factoring in property tax that will continue to go up and never go away even after the home is paid off, along with home owners insurance.

The upkeep of your home can run in the 10’s of thousands over the course of your mortgage as well. Things like your roof, water heater, boiler, sidings, air condition unit, landscaping, etc that will need attention over the years. That $250k house can very well run you double that once all is said and done.
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