Thinking about buying a home?
| 19 September 2009
Thinking about buying a home?
Disclaimer: Nothing in this article implies or should be construed as authoritative information such as information from an attorney.
Here are some financial reasons:
The primary reason to own your own home is - money. The money saved in taxes; accumulated as equity; and, the money made when selling.
About the Equity:
When people talk about home ownership, they always mention the word equity. Technically, equity is the value of your home above the liens (mortgage and loans) against the property. A lien is any loan or mortgage where the house is put up as collateral. Basically, the lien documents say “if you do not pay this back, I will take your house.”
An Equity Example:
You purchase a home valued at $180,000. You put $25,000 down and take a mortgage for $155,000. At the point of sale, this couple has $25,000 equity in the home.
Then ten years down the line that same home the mortgage has been paid down to $80,000. The home itself has increased in value because of the economy and the improvements that you have made to the home. So ten years later, the home is worth $220,000. You now have $140,000 of equity in your home.
Let’s not think this is always the case, just as you can build equity better than the latest hot stoke on the market, you can also lose big time as we have seen after a housing crash. Or a job lose that causes you to take a loan to make payments until you back on your feet, that eats at any equity you have built up.
The IRS and other governmental bodies can also put a lien against your home for back taxes, unpaid fines, and for court judgments. In addition, a lien can be placed against your property by an “unpaid” private contractor. (In some states this is known as a mechanic’s lien.)
Tax Advantages:
Homeowners are allowed to deduct mortgage interest and property taxes from their annual federal income tax filing. Some states also allow these deductions. In the first years of a mortgage, this is a large amount of money because that is when most interest is paid. If you paid points when you signed for the mortgage loan, the points cost may be able to be deducted in that year's income tax.
Passing to your heirs:
Many people look forward to having something to pass on after they pass away. A home, and or property are often passed on for generations.
Buying vs. Renting:
The usual way of thinking is that it is less expensive to rent than to buy. For some people, this is still true. However, as rents increase and property values increase, buying a home is becoming a real money-saver.
In general, buying a home gives you the financial plus of equity and tax write-offs. The homeowner can decorate as he or she pleases; is not subject to the landlord's rules on noise; and, does not have to wait for the landlord to fix the property.
On the minus side, in order to buy a home, a person may have to put down a sizeable down payment. There are additional costs such as taxes, insurance, and utilities for homeowners.
A homeowner also has the responsibility for fixing and maintaining the property, which is usually included in the cost of rent. If you have an active lifestyle, you may not have the time to keep up with the property maintenance. However, even with several minuses, owning a home financially comes out on top.
True cost of home ownership:
Owning a home means that you will pay for maintenance and repair. Of course you can cut these costs by becoming a DYI person. Ownership also means paying property taxes, utility bills, and maybe Homeowners Association costs.
Some of these costs, such as taxes and Homeowner Association fees, can be estimated before you agree to buy the house and should be in your calculations to determine if you can afford that particular property.
Ask questions about costs before you decide to buy a house. Ask the real estate agent, the sellers, anyone who can help. Also, look at the house with an eye as to what will need repair and/or maintenance. If the house has an old furnace, leaky faucets, broken windows, and other obvious problems that may need to be fixed immediately, calculate the costs of repairs before you offer to buy the house.
For good information on buying as home: Go to www.ginniemae.gov
Or directly to http://www.ginniemae.gov/1_learn/intro.asp?Section=YPTH
More on home buying soon.
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