I hear the above phrase all the time with clients in Virginia Beach, Norfolk and Chesapeake. Owning a home is a important financial responsibility, and the decision should not be taken lightly. Before you buy, you must consider:
– How long do you plan to stay in the area?
– Do you have enough money for a down payment?
– What about money for unexpected repairs?
If the time is right to buy, it’s often smarter than renting month after month.
Below I created a simple chart to compare monthly payments for renting versus owning. I based the chart on a home valued $200,000.
OK, let’s break down the chart. I used an FHA loan, which is a 30-year loan at a fixed rate. In this scenario, the monthly loan payment (principle and interest) amortized over 30 years is actually less than the rent payment.
Even with monthly mortgage insurance, hazard insurance and real estate taxes, the monthly payment is still less than renting.
Above all, after five years as a homeowner in Virginia Beach you’d have 11% equity in the house if the value of the house remains the same.
If you rent for those five years, you have 0% equity.
Equity is the amount a person owes on the mortgage in relation to the value of the property. The value of the property is determined by attributes like location, size, features and recent comparable sales in the neighborhood. The value of the home may increase, decrease or remain the same as they years go by.
*Approximate payment/cost comparison based on estimated annual tax results. Consult with a tax expert for your actual tax deductions. Payment based on FHA (3.875%) 30-year fixed rate loan (5.921% APR), sales price of $200,000 and loan balance of $196,378 with 3.5% down payment ($7,000). Mortgage payment assumes a fixed rate and does not account for possible property tax and insurance increases. Other financing available. Rates and examples as of 9/25/2014 and are subject to change.
New to the Virginia Beach area? Contact me!
Featured photo: Roger (Flickr)