TIRED OF PAYING FOR YOUR LANDLORD’S MORTGAGE?
The only one who benefits financially from a rent check is the landlord. Renters never see their monthly payments again, and they can’t use any of that money as a tax deduction. Home buyers, on the other hand, spend part of their monthly payments buying an asset they can eventually sell. The remainder of their monthly outlay pays interest to their lender, which is fully tax deductible in most cases.
If you are currently renting—or you’re moving and debating whether to rent or buy—take a look at how your housing payment could be put to better use purchasing a home. The real question may be whether you can afford not to buy your own home.
Stabilize Housing Costs
As a renter, you may be subject to a rent increase each time your lease period expires. You can end up paying more every year for a place to live with no limit and no financial return.
Homeowners who secure a fixed-rate mortgage, however, can expect the same monthly principal and interest (P&I) payments as long as they own their home. Even with an adjustable-rate mortgage, payments could increase if interest rates rise, but the increases would be capped to a maximum amount for each adjustment and over the life of the loan. (Will your landlord limit rent increases?)
Whether buying with a fixed-rate or an adjustable-rate mortgage, when the loan is paid off, homeowners enjoy a place to live with no required housing payment except, perhaps, for real estate taxes.
Add Up Tax Savings
While holding housing costs constant, most homeowners can also take an annual tax deduction for mortgage-interest expenses. The tax savings alone make the purchase of a home a wise financial decision for most people.
Since your payment schedule is amortized, you pay the same amount every month in the early years of your loan. Most of each payment during this period will go toward paying interest, with only a small portion paying off principal (the loan amount). Still, every month you will pay less than the previous month toward interest and more toward principal. As your interest expenses decrease over time, so will your annual tax savings, and your equity (owned value) in the home will increase.
Most homeowners eventually sell their homes. When they do, they can take advantage of a terrific tax break—a capital gains tax exclusion—that renters can’t reap on other types of investments. If you sell a primary residence you have owned and live in for two of the previous five years, you can keep profits up to $500,000 (filing jointly) or $250,000 (filing single) tax free. (Some exceptions apply. Ask your tax professional.) That makes owning a home an even better investment.
The biggest impediment to homeownership for many renters is the down payment. Remember, however, when you rent a place to live, you normally have to pay a security deposit and both the first and last month’s rent in advance (most likely). If you have pets, you may have to pay an additional deposit for them as well. Instead, you can be put that money toward a down payment on your own home, combining it with other cash assets—savings, liquidated investments, gifts from parents, a loan from your retirement plan, or other sources.
Borrowers with good credit are often surprised at how little cash it takes to buy a home today thanks to a competitive mortgage industry and local/state sponsored programs that encourage homeownership. Call us to find out more.
Of course, homeowners do have some expenses that renters don’t: real estate taxes, home maintenance and repairs, homeowner’s insurance, buying and selling costs, and perhaps homeowner association dues. These expenses can vary considerably depending on where the home is located, what type of property it is (single-family, townhouse, condo), the age and condition of the property when purchased, and how long the owner keeps it.
The benefits of owning a home can vary just as costs do, depending on the type of loan you select, current interest rates, your tax bracket, local property appreciation rates, and how long you retain ownership of the home. Those are just the financial considerations. Homeowners also experience many less tangible but very real benefits compared to renters. Examples may include more freedom of lifestyle, pride of ownership, a greater sense of stability and security, closer neighborhood friendships, and more community involvement, just to name a few.
Talk With the Pros
As real estate professionals, we at the Bizzy Blondes can supply you with the most current local market data and information you will need to make a sound decision about buying versus renting. We can help you determine how much home you can afford and what type of loan would best meet your needs. We would also be happy to show you available properties that match your preferences and budget. Even if you’re not quite ready to buy right now, we can alert you when homes that fit your criteria become available in the future.