Two things: Most of you reading this already own homes, so I am preaching to the choir, as it were. The second is that housing in Utah right now is comparatively expensive This is a function of current interest rates being higher than what you have on your current home, it’s also a natural consequence of our State’s low crime rate, low unemployment rate, quick commuting time, abundance of outdoor activities, friendly faces, changing seasons, and lakes that take up a lot of real estate along the Wasatch Front.
Now, the last thing I would want as a mortgage professional and as a friend is for someone to feel desperate for cash each month when they make their mortgage payment as a result of advice I gave. Too much month at the end of the money is a horrible feeling; it’s right up there with motion sickness on a roller coaster–well, probably worse since the foreboding weight of the bills doesn’t go away as quickly as the violent nausea. Amusement park vacations and achieving home ownership are both designed to be a worthwhile investments that bring joy, but for some people, sometimes, it’s misery. I’ve experienced both first hand.
Having said that, buying a house is still the fastest, most surefire way to create household stability and generational wealth for individuals, families, and entire communities. I’ll table the emotional well-being arguments and focus on the math portion today.
If you make $80,000 per year (I’ll use that number because that’s about the minimum it currently takes to buy a place without having sold a vital organ to come up with a down payment), and can come up with a $12,000 down payment (3%) to purchase a $375,000 property (they do exist), the following is true:
Compared to renting a townhome for $1,750 and paying $25 in renters insurance, your net monthly payment on a home you actually own is only $111 higher.
Keeping the $12,000 down payment and depositing the $111 payment difference into a savings account will give you $32,940 at the end of 10 years. Buying a home will give you $279,658.
A 5.25% return in a money market account is nice, but seeing a 1,866% cumulative return (avg. of the two methodologies) on your meager down payment is far superior.
These are a few things to keep in mind when your friends and family are bemoaning that the landlord raised the rent again. After you enlighten them with these simple computations, they’re going to thank you for being so dadgum smart and encouraging them to look into buying four walls of their own. As an aside, zero down loans are also still available. You should see the math on that! It turns out that multiplying $0 down over 10 years yields infinity returns! 😂
