What can buying a first home look like financially over time?
This case study follows a first-time buyer through five years of ownership and compares the outcome with renting during the same period.
The Purchase
The buyer purchased a home for $271,000 with a 20% down payment of $54,200. They financed the remaining $216,800 with a 30-year mortgage at 5.75%, with a total monthly payment of approximately $1,850, including property taxes and insurance.
Five Years Later
The home sold for $328,000 - a $57,000 increase in value, or approximately 21%.
During those five years, the homeowner also paid down approximately $15,692 in mortgage principal, leaving an estimated mortgage balance of $201,108.
Here's Where They Stood At The Sale:
Sale price: $328,000
Less Mortgage Payoff: -$201,108
Gross Equity: $126,892
Less Selling Costs: -$24,242
Net Proceeds at Closing: $102,650
That means the homeowner walked away from the closing table with approximately $102,650 that could be put toward their next home, invested or used for another financial goal.
However, it's important to distinguish those proceeds from actual financial gain. The homeowner originally contributed $54,200 as a down payment and invested another $30,000 into improvements.
Net Proceeds: $102,650
Less Original Down Payment: -$54,200
Less Improvements: $30,000
Net Gain: $18,450
So, while the homeowner received $102,650 at closing, their net gain above their original down payment and improvement investment was approximately $18,450.
What If They Had Rented?
Had this buyer rented for the same five years at $1,300 per month, they would have paid approximately $78,000 in rent, assuming no rent increases.
The renter benefited from a lower monthly housing payment and didn't have to commit $54,200 to a down payment or $30,000 to home improvements. At the end of five years, however, those rent payments did not result in home equity or an asset to sell.
In this example, the homeowner finished the five-year period with $102,650 available after the sale - including an $18,450 gain above their down payment and improvement investment.
The Takeaway
This case study shows why it's important to look beyond simply comparing a mortgage payment with rent. Homeownership comes with additional costs, but it also creates the opportunity to build equity through mortgage principal pay-down and property appreciation.
In this scenario, five years of homeownership allowed a first-time buyer to recover their original investment, realize an additional $18,450 net gain, and leave the closing table with more than $100,000 to put toward their next mov or future investments.
This simplified case study is based on an actual client scenario. Their situation is being used for illustrative purposes and does not account for every potential cost of homeownership or renting, including maintenance, tax benefits, opportunity cost or investment returns on money a renter may have invested elsewhere. Actual results will vary.
