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If I buy a house now in this market and sell in 10 years, will I just break even? Is it the same as

If I buy a house for $100K with a 30 year fixed loan at 5%. Will that make the payment $694.44 a month and $416.67 is interest? So that $277.77 goes to principal?
I own a 5th Wheel RV and pay $425.00 for lot rent. I hate throwing away the $425.00 per month but if I am moving out of state in 10 years wont I be loosing the same as lot rent in interest? I'll stay as I am if there isn't a benefit in buying a house for 10 years. Please explain if I am wrong.
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June 07 2013 - Tucson
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Best Answer
Hi John.
This is a complicated question, but for a start, your figures are off.  First, interest rates on a 30 year fixed mortgage are currently closer to 4% (assuming, that is, that you qualify).  You would not be financing 100% of the purchase price, but for the sake of argument, let's say that you took a mortgage for $100,000.  At 4%, that would give you a monthly payment (of principal and interest) of $477.42.  That ignores any home owners insurance, property taxes, HOA dues, mortgage insurance and any of the many other expenses of owning a home.
The first payment would be $144.08 in principal and $333.33 in interest.  The amount of interest decreases with each payment, as there is less principal on which to pay the interest.  At the end of 10 years, your total payments will be $57,290.40, of which 21,216.08 was principal and 36,074.32 was interest.  The interest -- at least currently -- is tax deductible, so the amount you would actually be paying is less.
This would leave a balance of $78,783.92 on your loan. There are, of course, ways to pay the loan off more quickly, such as taking a 15 year mortgage. Your monthly payment would be higher, but the interest rates are lower, and more of the payment would be applied to the principal. Speak to a mortgage broker for details and to see if you qualify.
As far as selling the house in 10 years, it is anybody's guess where the market will be then. Your house will also be 10 years older, which will be a factor in its market value.
I'll be happy to discuss this in more detail with you, if you like.  But in the end, you need to do what is right for you. 

Good luck
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June 07 2013
There are a lot of good answers on here, well said David Hopper!  For someone like you, I would recommend you speak with a local lender, get pre-approved and have them review the numbers with you.  How much you would need to put down, taxes, HOA fees, loan rate, mortgage payment and etc.   I would also recommend you speak with a CPA to review the tax ramifications of owning your own home, and a financial advisor in terms of general investments.   If anyone tells you for sure the house will be worth more 10 years from now, today, walk away from them quickly.  No one can say that for sure, when people say "It is a good time to buy", it needs to be the right time to buy for each buyer personally as well.

Best of luck to you.  When you are ready, call David & I know he will take good care of you.

Spirit
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June 08 2013
Profile picture for JohnSmith63

So if I pay $37,000 in interest over 10 years, I will be throwing away about $310.00 a month that I will never see again. The rest of the payment is principal that I may or may not get back depending on the market etc. It sounds a little like gambling that I know a lot of people have recently lost big. My 5th Wheel RV is paid for in full. I am a single guy and live in it comfortable. I can find a space with a lot rent for $300 per month.
Isn't it safer to pay the $300 lot rent which is the same as interest that I'll be paying and put $500.00 a month in savings instead of a house payment? I am just looking at the best way to save money for the next 10 years until I move to Florida. I don't like that I am loosing money on lot rent but wouldn't I be loosing about the same amount in interest from the home loan? How about saving for 3 to 4 years and pay cash for land that will allow an RV (Picture Rocks)? Besides property tax I could save more money. In these days, is a house really that great of an investment?
I have a credit score of about 730 and it would be higher but I have a student loan and child support on my credit that will keep me from getting a loan, I am assuming. I have $10k as a deposit and I have a yearly income of $60k. I have a feeling that I have no choice but to live as cheap as possible, put money away and pay off all debts. I am just trying to figure out the best way to go.
Thank you so much for your feedback!

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June 07 2013
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"Not to mention that there can be large tax advantages to owning your own home, like the Mortgage Interest Tax Deduction.  Depending on your tax situation, that can save you thousands per year."

This is the type of one-size-fits-all statement that I abhor.

Using your original numbers (i.e., $100K, 30yr @ 5%), interest in the first year (assuming a full 12 months) is just shy of $5K. If you are able to itemize on Schedule A, and assuming a 20% tax bracket, that works out to about $990 in "tax savings". But, remember that you spent $5K in interest to realize that "savings".

And, this only applies if you have enough deductions to itemize (your property taxes can also be applied). The standard deduction for 2013 has been announced at $6,100 for single filers, $12,200 for married/joint filers. As you can see, the $5K in interest is not going to do you any good, unless property taxes and other deductions push you over the standard deduction.

Again, it doesn't take an advanced math or business degree to run the numbers, but you really should run them for yourself.
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June 07 2013
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First, there are no guarantees in real estate. Prices may go up, they may go down. You may not do a good job of maintaining your house, and that may cause it to lose value.

I'm unsure where you got the $694.44 number from. Principal-and-interest on $100K over 360 months @ 5% is $536.82. However, there are other factors involved.

#1 - You don't mention anything about a down payment. I don't know how much it would add, but there is typically PMI involved if greater than 80% LTV (i.e., less than 20% down).
#2 - In addition to principal-and-interest, you also have property taxes and insurance.
#3 - The amount paid towards interest changes over time, so it's not a straight-line equation to determine how much is going to principal.

Factoring #1 and #2 into the equation pushes the payment more towards the $690 number.

Using Excel formulas it is possible to build your own amortization table. Based on the info you provided, the amount paid towards principal starts at $120 the first month, and ends up at $126 in month 12.

Another thing to factor into your calculations is any tax savings you may realize by deducting mortgage interest and property taxes. Also, you need to figure in some money for maintenance, commissions/expenses when it comes time to sell, and any anticipated increase in value over-and-above what you are paying off (you might want to be conservative on this number).

If you are, or know someone who is, familiar with Excel, it is fairly straightforward to set up a spreadsheet to let you play "what if?" scenarios, incorporating things like interest, property taxes, projected tax impacts, etc. The key functions to use are ppmt() and ipmt(). They're fairly straightforward to use.

Most REAs are going to tell you..."Buy." They may be right, but they have a vested interest in you buying. So, run the numbers for yourself and make an informed decision.

Good luck.
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June 07 2013

There are many more factors to consider...  A lot will depend on the type of loan - FHA or Conventional.  You'll need to speak with a Loan Officer who can give you exact numbers and help you determine what the closing costs, mortgage insurance, and other fees will be.  There may also be first time home buyer assistance that you might want to take advantage of as well.

Not to mention that there can be large tax advantages to owning your own home, like the Mortgage Interest Tax Deduction.  Depending on your tax situation, that can save you thousands per year.

And even though the last few year have been rough, it is very likely that the home will appreciate in the next 10 years - but a 5th will will only go down in value.

You should seek the advice of a loan officer and tax professional, and then talk to a real estate agent in your area to help you get a better idea of the pros and cons.

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June 07 2013
 
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