While Houston doesn't have the appreciation that some markets do I believe it would be prudent for you to purchase a home if for no other reason than to improve credit and establish mortgage history. You will at the very least break even before tax deductions which will put you ahead in the long run. If you're putting 20% down then as long as you have decent credit you should be able to get whatever loan you like. If you know you will be moving at some point then you might want to look at the Fannie May 10/20 IO...it's a true 30 year fixed with a ten year interest only feature. Good luck in whatever you decide.

 

On the whole deduction thing...

the person asking the qustion will likely have about $6.5K in deductable interest since the loan will only be $100K. I think the standard exemption is $5K so it is only another $1.5K in deductions. That's worth a whopping $375 off hit taxes. In this case, the interest deduction isn't the miracle many think it is.

IMO, to do an interest only loan because you know you'll only be there three years is kind of silly. You may as well rent. Some say rent is "throwing away" money but so is interest. Plus he'll save a lot and won't have the resale risk he would if he bought it.

 

Don't forget the Texas property taxes will be almost as much as the interest - and deductible.

 

good point. So, if that were another $5K he would save $1250 on his taxes, assuming he's in the 25% bracket.

Don't forget about the Alternative Minimum Tax. I doubt he'll get hit with it but it is something to consider, especially if you make over $50K and deduct lots of interest and taxes.