Buy vs. Rent in Anaheim, CA: Is Buying a $895,000 Home the Right Move?

As a mortgage loan officer, one of the most common questions I receive from prospective homeowners is whether it makes more financial sense to buy or rent a home. Let’s explore this question with a real-world scenario in Anaheim, CA, where a client is considering purchasing a home priced at $895,000 with 96.5% FHA financing, an interest rate of 6.25%, and an APR of 6.397%. Over the next 9 years, Anaheim's housing market is forecasted to appreciate by 5.56% annually.

Initial Costs of Buying

For this analysis, we'll assume the client qualifies for 96.5% FHA financing, which means they'll need to make a 3.5% down payment.

• Down Payment:
  3.5% of $895,000 = $31,325
• Loan Amount:
  $895,000 - $31,325 = $863,675
• Monthly Mortgage Payment (Principal & Interest):
  With a 30-year fixed-rate mortgage at 6.25%, the estimated monthly payment for principal and interest would be about $5,315. This calculation excludes property taxes, insurance, and potential HOA fees.
• Property Taxes:
  Anaheim's property tax rate averages around 1.1% of the home's value, which amounts to approximately $9,845 per year or $820 per month.
• Homeowners Insurance:
  Estimated at about $100-$150 per month.
• FHA Mortgage Insurance:
  FHA loans require mortgage insurance, which could add around 0.85% annually on the loan amount. That’s approximately $612 per month.

Estimated Monthly Costs:

• Principal & Interest: $5,315
• Property Taxes: $820
• Insurance: $150
• FHA Mortgage Insurance: $612

Total Estimated Monthly Payment: $6,897

Rent Scenario

In contrast, the rental market in Anaheim is highly competitive. The average monthly rent for a home similar to the one being purchased might range from $4,500 to $5,000 depending on location and amenities. For our comparison, we'll assume an average monthly rent of $4,750.

9-Year Outlook: Renting vs. Buying

Renting:

• Total Rent Paid Over 9 Years:
  $4,750/month x 12 months x 9 years = $513,000
• Equity Gained from Renting:
  None. Renting doesn't offer the opportunity to build equity in an appreciating market.

Buying:

• Home Appreciation:
  Anaheim’s forecasted annual appreciation rate of 5.56% means the home’s value will increase each year. After 9 years, the home could be worth:$895,000 x (1 + 0.0556)^9 = $1,426,679
• Equity Build-Up:
  While the home appreciates, you'll also be paying down your mortgage, building equity. After 9 years, a significant portion of your monthly payments will have gone toward principal.
• Total Interest Paid:
  Based on the loan balance, over 9 years, a large portion of your payments will go toward interest. However, the opportunity to build equity outweighs this, especially with Anaheim’s appreciation.

Additional Financial Benefits of Buying:

• Tax Deductions:
  Mortgage interest and property taxes are deductible for many homeowners, which can lower your overall tax burden.
• Home Equity:
  By owning your home, you can leverage the equity for future financial opportunities, such as taking out a home equity loan or refinancing.

Conclusion: Should You Buy or Rent in Anaheim?

With an appreciation rate of 5.56%, buying a home in Anaheim could offer substantial financial gains over the long term. While the initial monthly costs of owning are higher compared to renting, the equity built through home ownership and the property’s increasing value can more than offset the difference. Over 9 years, renting would cost you roughly $513,000 in rent, with no equity built. On the other hand, by purchasing, you could potentially see your home value rise to over $1.42 million, securing long-term financial stability and growth.

If you’re looking at home ownership in Anaheim, the numbers suggest that buying, even with a higher monthly payment, offers significant long-term advantages. Of course, personal factors like your financial situation, lifestyle, and future goals should also guide your decision. If you’re ready to make that leap into homeownership or want to explore your financing options, let’s talk!

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.