Diane Flannigan in our John Hall & Associates office wrote a great article about when it's time to buy and when it's time to rent. I constantly get asked about what a payment would be with the current interest rates where they are at right now. I was just talking to a client yesterday and was telling him this exact thing and they had a hard time believing me. Diane was speaking with a mortgage broker earlier this week and this is what he had to say:

John Hall & Associates isn't the only one with good news about this real estate market. I was recently talking to John Rapasky with Counsel Mortgage Group and asked him if the market had hit the "bottom" everyone is searching for. He had his usual intelligent and well thought out answer; I thought you might like it too. It is good news indeed and might be of interest to your clients, customers and prospects.

A common question in today's market is whether the market has bottomed. I will be the first to say that I cannot state that this is the bottom, nor can I predict when the bottom will (or has) occurred. However, as a mortgage broker, I do follow the interest rates and payments for a home. Right now is a time where monthly mortgage payments appear to be similar to rental payments thus creating a buying opportunity.

Let me give you an example. Assuming the purchase of a $175,000 home, using a conventional mortgage, a borrower can obtain financing with 5% down payment, i.e. $8,750, leaving a loan amount of $166,250. Assuming an interest rate of 5.5% on a 30-year fixed mortgage, the monthly principal and interest payment is $943.95. Adding estimated mortgage insurance of $130/month, homeowners insurance of $50/month, and real estate taxes of $125/month, the total monthly payment is approximately $1,250. After tax benefits, assuming a 25% tax bracket, this is similar to a renter paying $1,030 per month in rent.

In the first year of the mortgage, the borrower will pay $9,087.85 in interest and $1,500 in real estate taxes in the above example. This totals $10,587.85 of deductible items on the tax return (this is not including mortgage insurance, which may also be deductible for certain taxpayers). At a 25% tax rate, this results in a tax savings of $2,646.95. Dividing this tax savings by 12 months results in $220.58 in monthly tax savings. Subtracting this from the total monthly payment of approximately $1,250 above, results in approximately a $1,030 monthly rent payment.

Thus, if a renter is making a rent payment of $1,030 or more, they can purchase a $175,000 home and have a similar monthly payment, after tax benefits. When buyers recognize they can purchase a home and make effectively the same monthly payment as they do in rent, they typically make the choice to buy.

I would be happy to discuss this or other scenarios with you. I would also like to work with you and help you or your client qualify for a loan. You can call me at 480-502-1000 or e-mail me at rapaskyj at aol dot com. I look forward to helping you!

(More on the rest of the story series)

DF

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