Buying a
home can be one of your most significant investments in life. Not only
are you choosing your dwelling place, and the place in which you will
bring up your family, you are most likely investing a large portion of
your assets into this venture. The more prepared you are at the outset,
the less overwhelming and chaotic the buying process will be. The goal
of this page is to provide you with detailed information to assist you
in making an intelligent and informed decision. Remember, if you have
any questions about the process, I’m only a phone call or email away!
Benefits of Owning Your Own Home
The Best Investment
As a
fairly general rule, homes appreciate about five percent a year. Some
years will be more, some less. The figure will vary from neighborhood to
neighborhood, and region to region.
Five percent may not seem
like that much at first. Stocks (at times) appreciate much more, and you
could earn over six percent with the safest investment of all, treasury
bonds.
But
take a second look…
Presumably, if you bought a $200,000 house, you did not pay cash for the
home. You got a mortgage, too. Suppose you put as much as twenty percent
down – that would be an investment of $40,000.
At an
appreciation rate of 5% annually, a $200,000 home would increase in
value $10,000 during the first year. That means you earned $10,000 with
an investment of $40,000. Your annual "return on investment" would be a
whopping twenty-five percent.
Of
course, you are making mortgage payments and paying property taxes,
along with a couple of other costs. However, since the interest on your
mortgage and your property taxes are both tax deductible, the government
is essentially subsidizing your home purchase.
Your rate
of return when buying a home is higher than most any other investment
you could make.
If you are moving to a
home for the first time, you are going to be very pleased with all the
new space you have available. You may have to even buy more "stuff."
Income Tax Savings
Because
of income tax deductions, the government is basically subsidizing your
purchase of a home. All of the interest and property taxes you pay in a
given year can be deducted from your gross income to reduce your taxable
income.
For
example, assume your initial loan balance is $150,000 with an interest
rate of eight percent. During the first year you would pay $9969.27 in
interest. If your first payment is January 1st, your taxable
income would be almost $10,000 less – due to the IRS interest rate
deduction.
Property
taxes are deductible, too. Whatever property taxes you pay in a given
year may also be deducted from your gross income, lowering your tax
obligation.
Stable Monthly
Housing Costs
When you
rent a place to live, you can certainly expect your rent to increase
each year – or even more often. If you get a fixed rate mortgage when
you buy a home, you have the same monthly payment amount for thirty
years. Even if you get an adjustable rate mortgage, your payment will
stay within a certain range for the entire life of the mortgage – and
interest rates aren’t as volatile now as they were in the late seventies
and early eighties.
Imagine
how much rent might be ten, fifteen, or even thirty years from now?
Which makes more sense?
Forced Savings
Some
people are just lousy at saving money, and a house is an automatic
savings account. You accumulate savings in two ways. Every month, a
portion of your payment goes toward the principal. Admittedly, in the
early years of the mortgage, this is not much. Over time, however, it
accelerates.
Second,
your home appreciates. Average appreciation on a home is approximately
five percent, though it will vary from year to year, and in some years
may even depreciate.. Over time, history has shown that owning a home is
one of the very best financial investments.
Freedom & Individualism
When you
rent, you are normally limited on what you can do to improve your home.
You have to get permission to make certain types of improvements. Nor
does it make sense to spend thousand of dollars painting, putting in
carpet, tile or window coverings when the main person who benefits is
the landlord and not you.
Since
your landlord wants to keep his expenses to a minimum, he or she will
probably not be spending much to improve the place, either.
When you
own a home, however, you can do pretty much whatever you want. You get
the benefits of any improvements you make, plus you get to live in an
environment you have created, not some faceless landlord.
More Space
Both
indoors and outdoors, you will probably have more space if you own your
own home. Even moving to a condominium from an apartment, you are likely
to find you have much more room available – your own laundry and storage
area, and bigger rooms. Apartment complexes are more interested in
creating the maximum number of income-producing units than they are in
creating space for each of the tenants.
If you
are moving to a home for the first time, you are going to be very
pleased with all the new space you have available. You may have to even
buy more "stuff."
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