Buy vs. Rent in sierra madre, CA: Is Buying a $799,000 Home the Right Move?

When considering whether to buy or rent a home in Sierra Madre, California, it's essential to understand the long-term financial implications of both options. As a mortgage loan officer, I often guide clients through this decision, ensuring they have a clear picture of what to expect. Let's dive into a comparison for a $1,195,000 home purchase in Sierra Madre, using 95% conventional financing with an interest rate of 6.25% and an APR of 6.397%.

The Purchase Scenario

If you decide to buy a home at $1,195,000 with 95% financing, you would need a down payment of 5%, which equates to $59,750. The loan amount would be $1,135,250.

Mortgage Details:

  • Interest Rate: 6.25%
  • APR: 6.397%
  • Loan Term: 30 years (fixed-rate)
  • Monthly Mortgage Payment (Principal & Interest): Approximately $6,981

In addition to the mortgage payment, you’ll need to account for property taxes, homeowners insurance, and possibly private mortgage insurance (PMI). In Sierra Madre, property taxes are around 1.1% of the home value, so expect to pay approximately $1,095 per month in taxes. Homeowners insurance might be around $150 per month, and PMI could add another $250 to your monthly costs until you reach 20% equity.

Total Estimated Monthly Housing Cost: $8,476

The Renting Scenario

Let's say you find a comparable home to rent in Sierra Madre for $4,500 per month. Renting offers flexibility and eliminates the responsibilities of homeownership, such as maintenance and property taxes. However, rental costs tend to increase over time, typically around 3% per year.

Year 1 Rent: $4,500 per month
Year 9 Rent: Approximately $5,717 per month (assuming a 3% annual increase)

Home Value Appreciation in Sierra Madre

Sierra Madre is a desirable location with a forecasted appreciation rate of 5.2% per year over the next nine years. Here’s how the home’s value could grow:

  • Year 1: $1,195,000
  • Year 3: $1,330,839
  • Year 5: $1,481,843
  • Year 9: $1,688,281

By Year 9, your home could be worth approximately $1,688,281, reflecting an increase of $493,281 in equity.

Financial Comparison Over 9 Years

Buying:

  • Initial Costs: $59,750 (down payment)
  • Total Mortgage Payments: Approximately $753,612
  • Equity Built: $493,281 (home appreciation) + $101,550 (principal paid) = $594,831

Renting:

  • Total Rent Payments: Approximately $553,537
  • Equity Built: $0


Conclusion: Should You Buy or Rent in Sierra Madre?

When comparing the two options, buying a home in Sierra Madre at $1,195,000 with 95% financing provides a clear financial advantage over renting in the long term. Despite the higher initial costs and monthly payments, the appreciation of the home’s value and the equity you build can lead to significant wealth accumulation.

Renting might seem more affordable initially, but over nine years, it results in a considerable sum paid towards rent with no return on investment. If you’re planning to stay in Sierra Madre for the long haul, buying could be a wise financial decision.

As always, it’s crucial to consider your personal circumstances, financial stability, and long-term goals when making this decision. If you need further guidance or want to explore mortgage options, feel free to reach out. I’m here to help you navigate the path to homeownership in Sierra Madre.

David Delgado

NMLS# 349079 • Freedom Choice Lending

Office: (562) 281-6163

www.FreedomChoiceLending.com

Click Here To schedule a 15 minute loan consultation

The terms are based on 6.379% APR.


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