[nestingcouple]

Hi ocrenter,

Your way of presenting the scenario, especially the thought of zero down, provides really new perspective to us, we were only occupied with the thought to pay as much as we could for downpayment and maybe pay off in 15 years instead of 30 years. I appreciate your insights very much, and my wife likes your idea a lot. Your ideas are really brilliant, though we are not certain if we will be able to handle such heavy activities. Is this what you’re planning to do for the years to come?

[nestingcouple]

$2000 is for the current apartment, which is nice and we really have no complain. If we do not buy, then we probably won’t take the trouble to move into a rental house. Yep, I should have used $2000 instead of $2800, but to be fair with comparison, it has to been about $2800 to rent a similar new house of similar size or smaller size in 4S ranch.

but I consider other expenses mentioned by no_such_reality like decoration/furnitures necessary and “good” expenses, since they’re part of owning a house/even renting a house, and do improve life quality.

[nestingcouple]

I should have described my rent-buying calculation. I downloaded a spreadsheet template from Microsoft’s website, here is the detail:

Home Rent or Buy Analysis

Initial Assumption

After-tax rate of return on investments 5.00% (CD rate)
Marginal tax rate 35.50%
Estimated annual appreciation of home 0.00%
Down payment on home $140,000 (20% downpayment)
Estimated closing costs $5,000
Estimated purchase price of home $730,000
Monthly rent $2,800

Cost of Renting
Annual rent $33,600

Renter’s annual insurance premium
Total annual cost of renting $33,600

Cost of Buying
Mortgage loan amount $590,000
Annual interest rate 5.750%
Term of mortgage (years) 30
Monthly mortgage payment $3,443
Annual mortgage payment $41,317
Property taxes 12906 (=1.75% * loan * 1.25%)
Homeowner’s insurance $2,000
Maintenance $1,200
Opportunity cost of buying $7,250
Total cost of buying $64,673
Less Adjustments:
Principal reduction in mortgage $7,392
Tax savings of interest deductions $12,043
Tax savings of property tax $4,582
Total adjustments $24,017
Annual after-tax cost of home ownership $40,656
Less:
Estimated annual appreciation in value of home $0
Net annual cost of home ownership

Rent-Buying different is $40,656 – $33,600 = $7K

As first time buyers, I may have missed something, but I looked the formula behind the calculation and they seem reasonable. I really hope someone can correct some errors so the buying won’t look so reasonable/attractive so that I can convince my wife not to buy right now.
I’m so glad and thankful to see so many insightful comments, and I’ll tell my wife to read the forum and hopefully bring reasonable doubts to her.

[Author]

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