As is my habit, I went to see my mom yesterday. We had really good dim sum. We ate a large bowl of wonton soup. The broth was delicious. Shortly after I took her home my nephew Daniel arrived with wife Ana and their two children Nadia and Sean. We started discussing the age old subject of rent vs. owning your home.
Afterwards I decided to generate a spreadsheet so that I could present my reasons in this blog for buying a home. As you can see I did my best to compare apples to oranges. In my example it is a family of four making $60K a year. The numbers are as follows:
| Renter | Owner | |||||
| Yearly Gross Income | $60,000.00 | $60,000.00 | ||||
| Spendable Income | $47,128.74 | $47,128.74 | ||||
| Rent/Mortgage by Month | $ 1,768.80 | $ 1,768.80 | ||||
| Rent/Mortgage by Year | $21,225.60 | $21,225.60 | ||||
| Remaining funds | $25,903.14 | $25,903.14 | ||||
| 1040 Std/Itemized Deduction | $11,400.00 | $15,750.00 | $4,350.00 | More Deduct | ||
| 1040 family of 4 Exemption | $14,600.00 | $14,600.00 | ||||
| 1040 Taxable Income | $34,000.00 | $29,650.00 | ||||
| 1040 Tax Due | $ 4,266.00 | $ 3,614.00 | $ 652.00 | Less Tax |
It may not seem like much but in a simplistic projection that $652 will be a savings of over $6K in 10 years. Plus you are slowly building equity in your house!
| $ 420,000.00 | House Cost |
| $ 350,000.00 | Loan Amount |
| 30 | Years to Payoff |
| 4.50% | Loan Interest |
| $ 15,750.00 | 1st Year Interest |
| 20.00% | |
| $ 70,000.00 | Down Payment |
As far as the house goes I used a real example of a house I know that is 3 BR 2 Bath being sold in a short sale in San Mateo. As to whether one can come up with $70K for a down payment is the real issue.
Basically most houses in our area are too expensive to buy for the average Joe. Especially in an economy that has a high jobless rate. What jobs that can be had are being offered at rates well below what that Joe’s family can live off. In my above example the family must make $26K last 12 months. That’s a little more than $2K per month or $500 per week to cover food, clothing, utilities and other basic stuff. All the more reason to get that extra $50 a month! But I fully understand and sympathize as to why some are forced to rent vs. own.