Advantages to Home Ownership
Have you thought about how much money you throw away when you rent? When you buy a home, you can live in your investment as you build equity.
If you’re like most first-time home buyers, you’ve probably listened to advice from friends, family and co-workers, many who are encouraging you to buy a home. However, you may still wonder if buying a home is the right thing to do. Relax! Having reservations is normal. The more you know about why you should buy a home, the less scary the entire process will appear to you. Here are a few good reasons why you should buy a home:
Pride of Ownership
Pride of ownership is probably the most significant reason why people yearn to own their home. It means you can paint the walls any color you desire, turn up the volume on your CD player, attach permanent fixtures and decorate your home according to your own taste. In other words, no more landlord restrictions! Home ownership gives you and your family a sense of stability and security. It is about making an investment in your future. You, too, can enjoy more stability for you and your family and experience the pride of ownership!
Renting vs. Owning
When you rent you are practically throwing money out of the window, but owning a home is a safe investment for your future. If you compare paying rent versus owning a home, over time the numbers of what you lost can be staggering. By owning your own home you are paying off your home, but by renting you are paying off your landlords home! See the chart Rent vs. Owning
The Tax Advantage
Mortgage Interest Deductions
Home ownership is a superb tax shelter and our tax rates favor homeowners. As long as your mortgage balance is smaller than the price of your home, mortgage interest is fully deductible on your tax return. Keep in mind that interest is the largest component of your mortgage payment.
Property Tax Deductions
IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes.
Appreciation
Although real estate moves in cycles (sometimes up and sometimes down) over the years, real estate has always consistently appreciated. The Office of Federal Housing Enterprise Oversight tracks the movements of single-family home values across the country. Its House Price Index breaks down the changes by region and metropolitan area. Many people view their home investment as a hedge against inflation. You can benefit significantly from building equity in your home.
Mortgage Reduction Builds Equity
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works is that the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.
Capital Gain Exclusion
If you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. There is no age restriction, and the “over 55” rule does not apply. You can exclude the above thresholds from taxes every 24 months, which means you could sell every two years and pocket your profit–subject to limitation–free from taxation. See IRS tax tip
Equity Loans
Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18% to 22%. Equity loan interest is often much less and it is deductible. For many homeowners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home’s equity for a variety of reasons, such as home improvement, college, medical or starting a new business. However, do not fall victim to using your home equity and falling deep into debt. Always use credit wisely.
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Contact Joe DeLorenzo Broker/Owner of RE/MAX IN TOWN at joe@joedhomes.com or call 609-895-0500 x107.
