BUY VS. RENT

Calculating the costs to purchase a home is relatively straightforward for homebuyers. But potential homebuyers — especially first-time homebuyers — are unsure about how much it will cost to maintain and pay off their home over time.
Here, we cover the various costs and savings associated with homeownership in California to paint a clearer homeownership picture for your clients.
In California, the median monthly homeownership cost for homeowners with a mortgage is $2,214 as of 2014. Nationwide, the median cost is $700 less, at $1,522, according to the U.S. Census. Housing costs include:
·         mortgage payments;
·         real estate taxes;
·         any type of insurance on the home;
·         utilities;
·         fuels;
·         homeowner association (HOA) fees.
Using the median household income, the average California homeowner with a mortgage spends approximately 43% of their monthly income on housing costs, compared to the 34% national average. This breaks down to:
·         $2,194 per month or 47% of average household income in Los Angeles County;
·         $2,455 or 39% in Orange County;
·         $1,733 or 36% in Riverside County;
·         $1,685 or 36% in Sacramento County;
·         $2,263 or 41% in San Diego County;
·         $3,086 or 44% in San Francisco County; and
·         $2,849 or 35% in Santa Clara County, according to the U.S. Census.
Financial experts recommend limiting housing costs to one-third of the household’s income. However, with California’s infamously high home values, how does a homebuyer know their home purchase won’t overwhelm their finances?
Most of the difference in housing costs between counties is due to the size of the mortgage in higher-priced areas of the state, like the Bay Area and coastal Southern California, compared to lower-priced regions, like Riverside and Sacramento. This is good news for financial planning since homebuyers can easily plan for their monthly mortgage payment, and maintenance costs and other recurring fees are also fairly simple to plan for. Review the following for a break down of the housing costs California homeowners can expect to pay.
Recurring costs
First the homebuyer calculates the cost to acquire the home, assisted by the lender’s required Loan Estimate. [See RPI Form 311]
Next, the homebuyer figures out how much it will cost to own their home each month and in subsequent years.
Cost that homebuyers can easily plan for each month include:
·         the monthly mortgage payment;
·         any mortgage insurance payments;
·         homeowner association (HOA) fees;
·         utilities; and
·         landscaping and pest control fees.
HOA fees are among the highest in the nation in California. Particularly along the coast, HOA fees average $250-300 a month in the Los Angeles region, San Diego and San Francisco. Worse, HOA fees are sunk costs, meaning they don’t provide a return for the homeowner.
Home maintenance costs
Maintaining a home can be costly one month and cost nothing the next. Therefore, budgeting for home maintenance is especially important.
Homeowners can set aside money each month in a savings account designated for home maintenance. This fund will be used to repair and maintain the:
·         air conditioning unit;
·         hot water heater;
·         chimney, if applicable;
·         driveway sealant;
·         roof;
·         painting; and
·         pool, if applicable.
first tuesday estimates the average amount to be set aside each month for home maintenance is $400-$500.
Tax savings
Much of these homeownership costs are offset by savings on tax day.
For all homeowners, tax savings may include deducting:
·         the total amount of interest paid on the mortgage that year (the mortgage interest deduction or MID);
·         mortgage insurance payments;
·         local property taxes;
·         up to 30% of the installation costs of energy efficient improvements; and
·         the value of any extra construction materials or demolition waste donated to charity.
For first-time homebuyers, tax savings may also include:
·         points and charges paid to the lender to obtain the mortgage in the year of origination.
Property taxes will have to be paid, though they are deductible. Non-deductible costs are:
·         Mello-Roos;
·         improvement district assessments; and
·         solar bond payments.
Doing the math
With all the costs and savings involved in owning a home, it’s no wonder would-be homebuyers are confused, and why some end up over their heads. Here’s where an agent comes in.
To help your homebuyer client make a fairly accurate estimate on what