Just the other day, Get Rich Slowly wrote a terrific post about renting versus buying property. I’ve been meaning to write my own post about this, especially since purchasing property has been on my mind now for over a year. It is also one of my goals I hope to accomplish by the end of this year or the middle of next year. However, I’m still not ready to take the plunge for a few reasons:

• Down payment: I don’t have the down payment saved up. I’d like to have at least 10% saved, which would be about $30,000 on a $300,000 home. I am really far from this goal.
• House prices: Decent homes in good neighborhoods are still selling for around $300,000. We live in a suburb of Los Angeles, so our prices are a little inflated compared to the rest of the nation.
• Fluctuating income: My husband owns his own business and it’s currently a little slow (normal for January). I work as a substitute teacher so I’m not ever guaranteed work. This will also make it a little difficult to qualify for a traditional 30-year mortgage at a decent APR.
• Indecisiveness: Lately, there are a few things about LA that are really getting on my husband’s nerves. He’s been complaining about everything: from the traffic to the grocery store clientele, to our neighbors. I’m not so sure he’ll be happy in LA in a couple of years if the city doesn’t begin to offer better services, smoother roads, or less traffic! Also, there is little hope for me obtaining a teaching job within the next couple of years with the school district I work for. They are one of the largest districts, and can’t find the money to continue paying it’s teachers. I live smack-dab in the middle of that district.

This brings me to rethink our idea of purchasing property. I know that we will eventually be property owners, I just don’t know if it’s going to be as soon as I had hoped. I have been really struggling with this new train of thought. That is until I read J.D.’s post. Basically it boiled down to what it really means to own property and is it a good investment?

Deep down I know that owning property is a good thing. If by the time of retirement, the home we purchase is either paid off or is worth more than we purchased  it for, it could be used to help us retire or move. It could function as an added security later in life. However, if we move only 5 years after we purchased our property and the market hasn’t improved, we would be breaking even if we’re lucky. In that event, we would be better off renting.

I found a great, free calculator from Yahoo.com that puts renting and owning in perspective. (I tried the NY Times link on GRS, but you have to be a subscriber to use it). Here is what the calculator figured out based on my numbers:

Rent vs. Buy Calculator

You’ll notice that based on these figures, it would be better if I continued to rent. The only thing this really doesn’t calculate is the profit earned by selling the property. I’m not quite sure how that works, but I would think that if you purchased a property for $300,000 and decided to sell 20 years later, the property would be worth more than what you paid for it. This is in sharp contrast to renting for the same period of time, there’s no profit in that scenario at all.

Again, I do intend to be a property owner myself in the near future. At least now I don’t feel as rushed or guilty if I don’t own my own little house in the valley by mid-next year.

What are your thoughts? Does this calculator factor in everything? Or is it missing the resale value somehow?

As I keep tweaking my monthly budget, I’ve realized a few areas that need to be added, thanks to Money Funk. 1) Savings – both for my tuition and emergency fund, 2) life insurance – I originally left this out of my monthly budget, but pay for it every 3 months. It’s much easier to just budget it as a monthly payment, and 3.) bank charges. Since I have a couple of checking accounts that charge a monthly fee, I added them into my equations as well. In doing all of this budgeting to the penny, I realized I really need to pay down our line of credit to free up some money.

At a total of $8,380, I needed to come up with a realistic plan. As much as I’d like to send them huge lump sums and pay down this crappy debt, I have to be more realistic so that it actually happens. Using a couple of different calculators, I figured I could have it paid off between 3 – 5 years. Here are a few different scenarios using a couple of different online debt repayment calculators:

• CreditKarma’s calculator is very helpful. Based on their calculations, paying $300 a month, I could pay off our debt in 4 years. Their calculator offers a few different options to see how much quicker the debt could be paid off if I paid more monthly, or reduced the debt by a percentage.
• Bankrate’s credit card calculator lets me see how much of each payment is going towards principle and how much is going towards interest using their amortization chart. It’s shocking to see how much is paid in interest over the length of the loan. I think if more people saw this upfront before taking out a line of credit, more people would turn them down. I know I would have!

Each month, as additional funds come in that are over what I’ve set as my monthly budget, I intend to put more towards this debt. Over time, I’m hoping to pay this off before the estimated 4 years. If I can stick to my budget closely, and retain the income I’ve made in previous years, this should be rather doable.

What calculators have you used to show repayment? What about savings calculators?

Samantha Taylor is a contributing Financial Writer, Moderator and Community Mentor of  MortgageFit. She has been an active participant in the forums wherein she offers mortgage advice and suggestions to people in loan problems. If you have a query on “how much house can I afford” related issues, you can simply discuss it with her in the Mortgage Forum.

When you’re intending to purchase a new home of your choice, it is always better to work out the amount of money that you can afford as a home mortgage loan and the amount of loan that you can receive.

There are many websites that feature a home affordability calculator that can help you in working out how much money you can afford as a whole, probable down payment and the EMI (equated monthly installment) that you have to pay each month. Following are the precise steps that you have to stick with to use a home affordability calculator.

• Just open the home affordability calculator page featured by various websites.
• Input your gross monthly salary (incorporating your spouse’s salary, as well).
• Input any loan EMI amount that you’re paying at the present time. If there is no EMI that you’re currently paying, input zero in the required area where it is written “current EMIs”.
• Key in the term of your loan in years.
• Choose the interest rate of your home loan utilizing the slider available adjacent to “Interest Rate”.
• Choose the proportion of your gross monthly salary utilizing slider that you’re willing to pay as your EMI.
• See the outcomes which would demonstrate to you the “affordable EMI” together with the “maximum amount of loan you can afford”, “tentative down payment” and “value of the home you can afford”.

When the lenders are pleased with your repayment capacity, they would be willing to offer you 80%-85% of your home value as loan amount and the remaining 15%-20% you have to pay as down payment.

The highest EMI that one has to pay for the projected home must not go over 60% of their gross monthly salary. You should not forget to state the EMI amount of your previous loan if you have any at the time of utilizing the home affordability calculator.

This past weekend, I went hiking with my friend 8 miles west of where I live. Since I literally live in a valley, mountains surround me in all directions. One of my favorite hikes is 8 miles west of where I live, in the Santa Susana Mountains. It’s a quick loop hike, only about 4 miles long and I’ve been hiking it for the past 4 years. Getting there takes 20 minutes, but the scenery changes drastically as soon as I approach the base of the mountain.

As I head west on a main street, the road begins to wind, the cement sidewalks turn into dirt horse trails, and the vegetation becomes chaparral. I pass many huge, beautiful, and overpriced homes. Then, I enter Chatsworth Lake Manor, a small “mountain” community on the rim of the valley. The only reason it has the word ‘lake’ in the name is that there is a small reservoir behind a chain link fence. The community is small, it consists of a general store, a restaurant, and a few other businesses. There is also a quaint church nestled at the bottom of the foothills. I’ve always loved this part of the valley. It’s a completely different vibe than suburban Los Angeles.

Since this particular area has always piqued my interest, I decided to do some research on Redfin and Zillow to see if there were any homes in our price range, or at least land to build a house on. Just for the fun of it. I was surprised to find out that there are a couple for sale and some plots of land as well. My husband was especially interested in the land for sale. It was priced at a reasonable $35,000. We drove back out to the end of one of the roads this weekend, but was disappointed at the size and layout of the plot. We decided that we would have a hard time working with that particular lot.

When we got home, I did a little more research. I found a little house, that I’ve seen a couple of times, listed for under $280,000. It’s on a huge piece of property, but needs some work. My husband was curious, so our next trek out to that area will include visiting this property:

Chatsworth Lake Manor House for Sale

It’s an old house that needs a lot of work. I’m not so sure it would qualify for a home loan, but as my husband and I near the first of the new year, we intend to research this a little more. The home has a walk score of 22, fairly car-dependent, but I should be able to bike to shops.

Another house I found up in the canyon is a small cottage. The only problem is that I can’t map it on MapQuest or Zillow. It’s quite inexpensive at $140,000, but it’s also under 600 square feet. Perhaps too small for us. It’s also in a different county, so it’s a little further that what we planned:

Box Canyon House, Small Cottage

One last little house that I need to drive by is a small Lilac Canyon home built in 1925.  It’s walk score is a pitiful 3, which means that biking to my neighborhood Starbucks is out of the question. With my husband and I sharing one car, this would also present a problem. It sure is a cute little house though:

Lilac House for Sale

With thoughts of purchasing a home in the next few months, my husband and I have begun to have conversations about what we like about our current neighborhood. These conversations are helping us build an idea about what we want in a neighborhood. What we like about our current neighborhood where we’re residing:

• Older homes have more character than the newer “cookie-cutter” versions (older homes may have been cookie cutter’s years ago, but subtle changes over time have given them more character)
• Within a mile of our house are some stores, a Starbucks, and some fast-food restaurants that we can bike to
• Three miles from our house are a few nicer restaurants (a college is near this area, so Chili’s is the “nicer” restaurant of that I speak)
• Two miles from our house is a park with bike paths (though, the bike paths don’t necessarily lead anywhere expect around the park)

However, our current neighborhood also has some drawbacks like low-rent apartments, graffitti, and very few clearly marked bike paths. Though I like the character of the older homes, some of the homes have been neglected for many years and, unfortunately, bring down the value of the neighborhood.

One item my husband and I would really like in a neighborhood is to be able to bike, on clearly marked bike paths, to nice restaurants or bars for an evening out. With this in mind, I began to research walkable neighborhoods using the Walk Score website. A neighborhood that clearly stands out for us is Canoga Park, an adjacent neighborhood only 4 miles from our present location. Many small antique shops, a couple of diners, and a theater have revitalized this once old neighborhood. Five blocks, on both sides of the street, are made for walking and the outlying half-mile or so are also quite pedestrian friendly. Canoga Park has a walk score of 72 out of 100, with 100 being a walker’s paradise. (see below for a comparison of cities)

On the other hand, a community with newer homes (and these aren’t really all that new) has a much lower walk score. Granada Hills is rated at a 49, anything under 50 is considered car-dependent on the Walk Score website. The design of these communities focuses on block after block of houses without a store or restaurant in sight. I can think of many contemporary suburban communities that are similar to this. Somewhere in the urban planning process, being able to walk somewhere was forgotten.

Walk Score has rated cities walkable.

Obviously, most urban communities are very walkable; think New York City or San Francisco. Yet, in many suburban cities and outlying urban areas, you can find pockets of walkable neighborhoods. Finding bikeable cities, however, is another task that I haven’t yet conquered. Of the bike-friendly cities I know of, none are within a few miles of where my husband and I live and we will unlikely move for that reason alone.

A few other reasons my husband and I prefer an older neighborhood is that they have more mom and pop type stores and not just big box stores. Since we are entrepreneurs ourselves, we like supporting other small businesses when we can. We also like that older neighborhoods have a more diverse population; cookie-cutter neighborhoods tend to draw cookie-cutter couples with their two children and their dog.

So, our search continues for the pedestrian/bike-friendly, quasi-suburban, affordable, character-rich neighborhood that may only exist in movies. Does anyone know of a bike-friendly website like Walk Score? Can someone recommend a neighborhood in suburban Los Angeles that they absolutely love?

Getting back to my 3 step plan, I’ll elaborate more on our money saving goal and why that amount. But first, it’s important to understand how we came up with our house budget without going house-broke.

We originally set our house budget at $200,000. However, after numerous RedFin searches, we recognized this was not realistic. There weren’t any homes at this price. So, we revised our budget to $250,000, give or take $10,000. This is completely do-able if the plan goes down like this:

• Save at least $20,000
• Find a home for $250,000 that’s not completely falling down
• Finance $230,000 at no more than 6.2% interest rate
• Monthly mortgage = $1410
• Monthly property tax = $313 (1.5% of cost of house)
• Property insurance = $150 (this is an estimate)
• Total monthly cost = $1873 (only $73 more than our current rent)

I used Bankrate’s mortgage calculator to help figure out our mortgage amount:

Bankrate's Mortgage Affordability Calculator

Michael Bluejay’s calculator is a little more detailed, he estimates what you can afford:

Michael Bluejay's Mortgage Calculator

The down payment, or how much we can save, will affect how much of a house we can afford. The less we have saved, the less we can afford and there are not many houses available in the low $200,000’s.