Category: Financial (2)

Van Henry Realtor | Renting vs. Buying Article

Rent vs Ownership

The average monthly lease on an apartment in Austin passed the $1200 per month rate. There are less expensive apartment in the Austin area, but they generally come with a cost. Convenience, mobil accessibility can present challenges to those seeking to enjoy working in Austin. One question that is often asked is should one rent, or purchase. While the ultimate decision has to be in your best interest, lets look at the cost of renting vs purchasing a home.

Both apartments and homes have similar costs. Utilities, internet, waste collection fees, etc. Apartments may “hide” some of the costs by including them in the rent, but you are paying them non the less. For comparison seek I am not going to inculde the price of phone service, or internet.

Monthly Rent  |  Mortgage (on a $330,000 average price in Austin)
$1,200  |  $1643 (assumes 5% down –$16,500 and a 4.79 interest rate
$1,200 (deposit)  |  $489 (insurance, property tax)
$250 (renter’s insurance)  |  $0

Total monthly cost
$1450  |  $2132

At first glance, it seems rent is much cheaper and initially it is, however over time several things happen.

Year one cost
$17,400  |  $42,084 ($25,584 plus $16,500 down payment)

Year one appreciation
0  |  3.5% (conservative estimate $11,550)

Year one return on investment
Negative $17,400  |  Negative $30,534

Year two appreciation (3.5 compounded)
0  |  $11954.25 (3.5 compounded)

Year two return on investment
Negative $34,800  |  Negative $18579,75

Year three appreciation
0  |  $35,876.89

Year three return on investment
Negative $52,200  |  Positive $17,297.14

Year four appreciation
0  |  $37868.58

Year four return on investment
Negative $69,600  |  Positive $55,165.72

 

Unless you are doing a “cash” purchase, many sellers want to know if you can in fact afford the home they have on the market.  You as a buyer also will want to know how much home can you afford and if your purchase transaction will go smoothly, or as smoothly as possible.  The terms Pre Qualified and Pre Approved will often come up in a conversation.  While similar these two terms are functionally different.

Pre Qualified (pre qual) means you have had a very basic income and credit check done.  However, this does not mean you have obtained, or even qualified for a loan.  Pre Approved is different however.  When you have been Pre Approved, it means you have qualified for a loan and more importantly, you know how much loan you are eligible for.  When you are Pre Approved, you are ready to shop with confidence that the home you fall in love with will be within your means.

I always suggest to my clients to seek out a lender who will sit down with you and work on pre approving you for a loan.  A lender will sit with you and go through all the details, give your credit counseling, if necessary and if at all possible will give you a letter or pre approval that you can show a potential seller.

Most lenders will perform this for you free of charge.  After all they hope to work work with you on your home purchase.  One Loan Officer I have had outstanding experience with in providing Pre Approval services to my clients is James Schell at Infinity Mortgage Holdings, LLC3420 Executive Center Dr. Austin, Texas 78731. 512-469-9058.  I invite you to speak with James about Pre Approval and credit counseling.