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What are some emotional reasons for buying a home? Desire to paint and decorate. Like to garden and work outdoor. Neighbors are too close or too noisy. Want a garage. Want private space or private back yard. Other?
What are some financial reasons for buying a home? Equity buildup from mortgage pay down. Equity buildup from appreciation, due to market conditions and repairs or renovations. Tax advantages of buying a home vs. Renting.
You can’t afford not to buy a home! Rents have increased an average of 3% per year over the last 10 years. Starting with a rent payment of $1000 ten years ago your estimated monthly rent would be $1350 today and you would have paid a total of $139,000+ over that same ten years. A fixed rate mortgage payment will remain the same. The mortgage interest, private mortgage insurance & real estate taxes paid are tax deductible. Is rent deductible? The government is helping you buy a home.
So let’s look at an example of tax savings: Home purchase price = $200,000; $10,000 down = $190,000 mortgage 30 years @ 6.0% = $1,139 per month; Estimated taxes = $400 per month; Estimated Insurance = $75 per month; Total Payment = $1,614 per month
Monthly Payment = $1,614; Tax Savings assuming 30% income tax bracket: Mortgage Interest = $283 per month ($945 x .30); Property Tax = $120 per month ($400 x .30); Total Tax Savings = $403 per month; Total Monthly Cost After Tax Savings = $1,211
Can you take advantage of tax savings monthly? Yes you can. Check out the W4 form. This allows you to take advantage immediately of the tax savings to help pay your mortgage payment which would probably be higher than your rent payment. Fill out the form and submit it to your employer. Your withholding goes down and thus your net check is increased. If you have any questions about this procedure please contact your tax preparor.
Let’s take a look at appreciation and equity buildup from mortgage pay down: Average Price Appreciation, 1970-2005 = 6.7%. Are home values going up or down long-term? My bet is they will go up long term. A $200,000 home would be worth $300,000+ after 10 years at just 4.5% annual increase. The mortgage balance after ten years would be $125,500 based on the example shown above. The equity balance after ten years would be $174,500. Renter’s equity after ten years = $0. Home owner’s equity after ten years = $174,500. The Federal Reserve Board estimates that home owners have a net worth almost 36 times more than that of renters. In 2004, median net worth for home owners was $184,400 compared to $4,000 for renters. You can’t afford not to buy a home!
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