When we moved, I didn’t want to buy right away. We found our home for rent and while touring it the owner mentioned that she was probably going to put it on the market in a year. We could see ourselves in this house, so we signed a lease with the option to purchase at anytime.
This house had a cool feature; the basement is a one-bedroom apartment that rents for $875 a month! After five months, we decided that the house was perfect for us, so we went through with the deal.
Real Estate Transaction Analysis
Purchase Analysis – June, 2013
Purchase Price: $310,000
Loan: 30 Years at 3.875%
Down Payment: $15,500
Closing Costs: $5,713
Mortgage Payment: $1,384.35
Escrow and PMI: $338.86
Total Payment: $1.723.71
Assuming I can keep the apartment occupied, my monthly payment is $848.71. Not bad for a $310,000 home with a 5% down payment!
I decided that I would rather go with a 5% down payment, not because I didn’t have the additional funds for a 20% down payment, but that 3.875% is so low that I thought I could invest my money and be better off in the long run. I am so glad I made that decision, as the extra $45,000 was able to jump start my real estate investing portfolio.
Private Mortgage Insurance (PMI)
Having to worry about the $147.50/mo PMI is a definite bummer, so I looked into paying a little more on the principal each month. The PMI will go away once the principal is 80% of the value of the home. Assuming no appreciation in value, the magic number is $248,000. If I were to pay the minimum payment of $1,723.71, I would be able to eliminate PMI in June of 2021. I thought about adding an additional $176.29 to my monthly payment (bringing it to an even $1,900). With this additional payment, I would be able to eliminate the PMI in June of 2019. After running the numbers, I realized that spending an additional $12,692.88 over the six year period just to save $3,540 is a worthless investment and I’m much better off taking the $176.29/mo and investing into my real estate business.
One last piece of information about this purchase, this home is under a tax abatement which expires at the end of 2014. So in 2015 my property taxes will go up and sadly I’m not sure how much.
As you can tell, I don’t regret this purchase at all. Had I known what I knew now, I may not of gone through with the deal because it is certainly not a profit center. But we love the house and are thrilled to be living here and having our mortgage subsidized.