|The purpose of this calculator is to
allow you to see how the financial advantages of buying a home depend on
the relationship of rents to prices and the outlook for home price
appreciation in your area.
Follow directions carefully, and type in
reasonable values for all data elements. The numbers in the boxes now
are default values. If you are not sure what value to type in to a
particular box, you may leave the default value in place. Java runs on
the client machine, so that if you mess around it will be your computer
that crashes, not mine. Also, we can take no responsibility for any
financial or programming errors in this code.
This is the interest rate on a mortgage
with zero points. Because the starting rates on ARMs are unrealistically
low, it is recommended that you use a fixed-rate mortgage rate for this
This is your marginal tax bracket. It
should be the sum of your marginal tax rate on Federal income tax and on
state income tax. One complication is that if you take on a big
mortgage, your taxable income may fall and this could reduce your
marginal tax bracket. If your current income is only slightly above the
level needed to put it into the highest tax bracket, you might want to
use the next highest tax bracket here to get a more realistic estimate.
applet, the information will not leave your machine. So you are not
sending personal information over the Net.
Property Tax Rate
Input the property tax rate for your
This is a critical assumption, and it
requires a forecast. At what rate do you think that prices and rents
will increase in your area for the next several years? In the late
1980's, people in California thought prices would go up 10 percent a
year forever. Now, they seem to think that prices will decline forever.
The most reasonable guess nationwide is that prices will go up with the
general rate of inflation, about 2 percent per year. However, local
supply/demand conditions tend to be more important than national
averages in determining home prices.
The rent is the monthly rent and the
price is a selling price on comparable residences. It is more
important that they be comparable to one another than that they be
comparable to the place in which you live or are thinking of living. Do
not compare the 2-bedroom apartment you are in now with a
4-bedroom detached home that you might buy. Instead, find a condominium
complex where you can find the rental rate and selling price of similar
units. Or look in the classified section of a newspaper for rental rates
and asking prices of similar houses in a neighborhood.
Do not include any dollar signs or commas. There are no edits in the
program to take them out.
If you are comparing renting an apartment
with buying a condo, make sure to include the monthly condo fee.
This is the number of years you expect to
remain in the house. This is important, because whenever you move you
incur costs, including fees to real estate brokers. The longer you plan
to stay in a house, the more likely it is that staying will be
Next, you click on "compute" and in the
box you will see an evaluation of whether or not it is advantageous
financially to buy a home. To see how the results change depending on
the inputs, try putting in different numbers, particularly for expected
The answers are on a scale that ranges
from "strongly advise buying" to "strongly advise renting."