Rent vs Buy a home in Sacramento...what makes the most financial sense?

The last couple of years around this time I have written blog posts detailing the monthly mortgage payments vs. average rent payments in certain neighborhoods in Sacramento. I thought I would start 2013 with a similar post, updated with today's interest rates, average Sacramento home prices, and average rents.

My phone has been ringing off the hook for the last few weeks. Who has been calling me? Prospective home buyers who finally have decided that now is the time to buy a home in Sacramento. In many areas, it is currently more affordable to buy a home in Sacramento than rent a home. Or in a similar vein, because renting is more expensive than owning -- some calls are from investors looking for cashflowing income properties. I have also received calls from several potential sellers who see this uptick in the market as a sign that it is an opportune time to sell and buy a larger home. Prices are slightly up from last year -- but still extremely low as compared to the market peak, and rents seem to have increased. If you don't believe me -- just compare this data to a similar post from around this time last year.

When you take into consideration the average home price and probable monthly mortgage payment in particular Sacramento neighborhoods vs. the average rent, often times the mortgage payment is less. Plus often times the 'average' home that is purchased is much larger or nicer than the 'average' home rented. Let's take a look at a few different areas...just for the sake of citing my information sources, for average home price (used to calculate mortgage payment scenarios) I am using most recent December 2012 Trendgraphix data, which is taken directly from MLS, and for average rent I am using the most recent Q4 2012 Homepointe Quarterly Residential Rental Survey. For my mortgage payment calculations, I am basing it on a 3.75% interest rate (which is actually slightly above today's average market interest rates), and including the full PITI - loan principle, interest, monthly property taxes, and monthly homeowner's insurance (and mortgage insurance where applicable).

Natomas - 95833, 95834, 95835
Average single family home sale price: $221,000
Average rent for a 3 bedroom home: $1,319
30-Year Fixed VA Loan (Zero downpayment): $1,340
30-Year Fixed FHA Loan (3.5% downpayment): $1,521
30-Year Fixed Conventional Loan (10% downpayment): $1,318
30-Year Fixed Conventional Loan (20% downpayment): $1,113

Elk Grove / Laguna - 95757, 95758
Average single family home sale price: $254,000
Average rent for a 3 bedroom home: $1,432
30-Year Fixed VA Loan (Zero downpayment): $1,540
30-Year Fixed FHA Loan (3.5% downpayment): $1,748
30-Year Fixed Conventional Loan (10% downpayment): $1,515
30-Year Fixed Conventional Loan (20% downpayment): $1,279

Rosemont / College Greens - 95826, 95827
Average single family home sale price: $181,000
Average rent for a 3 bedroom home: $1,235
30-Year Fixed VA Loan (Zero downpayment): $1,097
30-Year Fixed FHA Loan (3.5% downpayment): $1,246
30-Year Fixed Conventional Loan (10% downpayment): $1,079
30-Year Fixed Conventional Loan (20% downpayment): $912

Arden - 95821, 95825, 95864
Average single family home sale price: $257,000
Average rent for a 3 bedroom home: $1,308
30-Year Fixed VA Loan (Zero downpayment): $1,558
30-Year Fixed FHA Loan (3.5% downpayment): $1,769
30-Year Fixed Conventional Loan (10% downpayment): $1,533
30-Year Fixed Conventional Loan (20% downpayment): $1,294

Carmichael, Fair Oaks - 95608, 95628
Average single family home sale price: $283,000
Average rent for a 3 bedroom home: $1,478
30-Year Fixed VA Loan (Zero downpayment): $1,716
30-Year Fixed FHA Loan (3.5% downpayment): $1,948
30-Year Fixed Conventional Loan (10% downpayment): $1,688
30-Year Fixed Conventional Loan (20% downpayment): $1,425

Citrus Heights, Orangevale - 95610, 95621, 95662
Average single family home sale price: $197,000
Average rent for a 3 bedroom home: $1,305
30-Year Fixed VA Loan (Zero downpayment): $1,194
30-Year Fixed FHA Loan (3.5% downpayment): $1,356
30-Year Fixed Conventional Loan (10% downpayment): $1,175
30-Year Fixed Conventional Loan (20% downpayment): $922

South Land Park, Pocket / Greenhaven - 95822, 95831
Average single family home sale price: $222,000
Average rent for a 3 bedroom home: $1,318
30-Year Fixed VA Loan (Zero downpayment): $1,346
30-Year Fixed FHA Loan (3.5% downpayment): $1,528
30-Year Fixed Conventional Loan (10% downpayment): $1,324
30-Year Fixed Conventional Loan (20% downpayment): $1,118

Obviously there are other tangible and intangible benefits to home ownership as well...for example, a tangible benefit is the fact you can write-off your mortgage interest on your income taxes, and also deduct some other related expenses each year. An intangible benefit might be that as a homeowner, you have the freedom to paint the walls, decorate, plant a garden, remodel, etc.

So clearly these numbers are just a baseline to give you an idea of housing affordability in certain areas. You definitely need to consult a loan officer to see what type of financing is the best fit for you, and ultimately just how much you can afford - and there are several variables that will affect your interest rate and terms. You should also speak with a CPA or qualified tax professional regarding the mortgage interest and other tax deductions to see how it will affect your particular situation. If you need a good referral to either one, feel free to contact me and I can put you in touch.