Debunking the Mazda Myth

There is a presumption swimming around in the heads of some people out there that we in real estate like to call the Mazda myth (Mazda as in the car company). This myth is prominent among individuals who have bought a car, but never a home. As I’ll explain, these buyers think of home prices and payments in terms of car prices and payments, which usually leads to mistaken assumptions about how much home they can actually afford. This post is not meant to make light of these people, but just to clear up some erroneous ideas.

Let’s say you just went out and bought a nice new Infiniti G35 for $35,000. I have no idea if that’s the true price for a G35, but just play along. You sit down with the dealer to discuss financing and after all is said and done, it is determined that your monthly payment will be $700. You do the math in your head just for fun, and find that $700 is 2% of $35,000.

So then a few months later you are looking at homes on the internet because you are sick of renting, and you come across a home that you really like. The asking price is $250,000. You try to compute in your head how much a monthly payment would be on a home like that, and your only point of reference is your car payment. You deduce that since your car payment was 2% of your car price, your mortgage payment will probably somewhere around 2% of your home price. You again do the math and you learn that 2% of $250,000 is $5,000. Wait…$5,000??!!

You say to yourself that you could never afford a mortgage payment like that!

I’ve you’ve ever thought like this, you’ve been lured in by the Mazda Myth. In reality, your mortgage would be much less. The terms of the loan are different, and you have to take into consideration things like principle, interest, taxes and insurance. My loan officer friends are much better at explaining all this than I am, but I’ll tell you now that you won’t be expected to pay $5,000 per month for a $250,000 home.

For many renters, it’s entirely possible to purchase a home and end up paying the same as what they were paying for rent. When you remember that mortgage interest is not taxed, whereas you pay rent with after-tax dollars, you’ll find that some of the steeper rents out there are so not worth it. Add to your rent price what you would save in taxes if you had a mortgage, and you can afford more home than you think.

It’s all simpler than it sounds, and the point is that some people don’t bother looking for homes because they don’t believe they could afford it. To you, I say that a brief visit with your mortgage professional can’t hurt. You will find out if you can buy a home or not, and if you can’t, your agent can let you know what you need to shoot for.

I’d be happy to answer any questions that you might have about all this. Click on the contact tab at the top of the page and I’m at your service.

Tags: Mazda Myth,rent vs. buy,real estate, Utah real estate

If you enjoyed this post, make sure you subscribe to my RSS feed!