Do an apples to apples comparison. How much will it cost to buy a house in the area/size that you would consider? 600k? 700k? More? Next, how much is your current rent? Or, how much would rent be for the area/size you that you would consider? Then consider time frame. Is this where you want to be for the next 10-15 years? Both location and specific property? Because if prices are flat or down 10-15%, you may not have a choice in the matter.
I recently did this for my brother. He was considering buying in San Marcos. He told me he could find a nice rental for $1200, and comparable condo for $350k.
For the condo: after raiding his savings for 70k (20% down), his PI on a 30 yr fixed at 6.3% on $280k loan would be $1733. Add in insurance and taxes. Yes, there is a tax deduction. He does not currently itemize. The interest payments in the first year would total appx $17,500. He is in the 28% marginal Fed tax rate. After taking off the standard deduction, his tax savings are $3500. So, his tax savings are probably equal to the amount he would pay in property taxes, and declining each year. After paying for insurance, and the taxes cancelling each other out, he is looking at paying roughly $600-700 more per month. Also, by renting, the 70k could be left in an Emigrant Direct or HSBC online savings at 5%, earning $3500 per year. Buy the condo without raiding the savings, and all monthlies go up, plus you get either PMI or a piggyback loan.
Is renting a waste of money? Well, whom do you want to rent from, a landlord who is responsible for repairs, etc., or a bank? Renting from the bank will cost a lot more as detailed above. If he thinks prices will remain flat or go down 10-15%, you’re nuts to buy now. If you both think prices will still go up, then by all means dive right in.
