The power of purchase

Sarah Pichardo,Senior Loan Officer

The Power of The Power of PurchasePurchase

Renting vs. BuyingRenting vs. Buying


How do you know if it is better to rent or to purchase

a home?

How do you know if it is better to rent or to purchase

a home?

Key considerations:Key considerations:

•LocationLocation

•How long do you think you will be in the area?How long do you think you will be in the area?

•How long do you think you would be in the home?How long do you think you would be in the home?

•Budget Budget


People buy a home for some of the following reasons

People buy a home for some of the following reasons

• Anticipated AppreciationAnticipated Appreciation: : ~5%/year (NoVA area)~5%/year (NoVA area)

• Tax benefitsTax benefits: : – Mortgage Interest deduction The government allows you to deduct a portion of the interest you pay on your

mortgage from you income taxes

– Property Tax Deductions – Real estate taxes are tax deductible on primary residence

– Mortgage Insurance Deductions – If you pay mortgage insurance you can currently deduct the mortgage insurance from your taxes on borrowers earning $100,000 or less/year

– Capital Gains Exclusion – The government allows you to exclude up to $250k (single person) or $500k (married couple) of profit from capital gains tax as long as you live in your home at least 2 out of the past 5 yrs.

• Pride of OwnershipPride of Ownership:: can customize home and make it can customize home and make it yours yours

• Sense of SecuritySense of Security

• Equity LinesEquity Lines: : ability to tap into your equity (pay off credit card debt, college, ability to tap into your equity (pay off credit card debt, college, renovations, anything)renovations, anything)


People decide against renting for some of these

reasons

People decide against renting for some of these

reasons

• ““At the mercy of your landlord”At the mercy of your landlord”• Landlord can raise your rent

• Landlord can kick you out

• Landlord can take a long time to make necessary repairs

• Security Deposit Security Deposit

• Rental InsuranceRental Insurance

• Breaking a lease penaltiesBreaking a lease penalties

• Lost OpportunityLost Opportunity


How much lost opportunity? Consider this scenario

How much lost opportunity? Consider this scenario

$280,000 valued house in Centreville$280,000 valued house in Centreville

By buying instead of renting, this individual saves: ~$16,680/yr

Rent Buy

Monthly payment: $1,800/mo

Initial outlay: ~$3,600(Security Deposit/1 mo rent & 1 mo security deposit )

Monthly Payment: $1,950/mo*

Initial outlay: $9,800(eg. FHA 3.5% down payment on 280,000 house @ interest rate 4.75%)


ProofProof

Consideration Impact Effective Monthly Payment

Monthly payment P&I: $1,423Taxes: $233MI: $204Insur: $40HOA: $50

$1,950/mo

Tax savings on interest paid $270/mo (25% tax bracket)

$1,950 - $270 = $1,680

Monthly mortgage payments towards principal

$345/mo $1,680 - $345 = $1,335

5% appreciation/year* $1,150/mo(280,000*5%)/12

$1,335 - $1,150 = $185

Feels like $185/mo

Renting $1,800/mo

Buying (after considerations):

$185/moBottom Line:


Historic Northern VA annual appreciation

Historic Northern VA annual appreciation

The price of existing homes increased by 5.4% annually from The price of existing homes increased by 5.4% annually from 1968 to 2009, on average. (Source: NVAR)1968 to 2009, on average. (Source: NVAR)


ResourcesResources

Calculators are available Calculators are available online online

•New York Times website:New York Times website:

•Realtor.comRealtor.com

•OthersOthers

Source: www.nytimes.com/interactive/business/buy-rent-calculator.html


ProgramsPrograms

FHA - FHA - Loan program to assist homebuyers in acquiring property with small Loan program to assist homebuyers in acquiring property with small down payments from gov’t agency (Federal Housing Administration) [3.5% down payments from gov’t agency (Federal Housing Administration) [3.5% down payment]down payment]

VHDA FHA PLUS - VHDA FHA PLUS - designed to help low to moderate income families obtain designed to help low to moderate income families obtain affordable financing. [up to 101.5% financing]affordable financing. [up to 101.5% financing]

VA - VA - Feature designed to provide housing and assistance for veterans and their Feature designed to provide housing and assistance for veterans and their families as established by the GI Bill. [100% financing]families as established by the GI Bill. [100% financing]

Conventional - Conventional - Any mortgage that is not insured or guaranteed by the federal, Any mortgage that is not insured or guaranteed by the federal, state, or local gov’tsstate, or local gov’ts


Questions?Questions?

Real Estate

The power of purchase