First, the 5 biggest reasons to buy a home!
1. To save on your income tax
That’s right, income tax… savings. The government, by allowing deductions, is subsidizing your home purchase. All the interest payments and property taxes that your property costs you during the year can be deducted from your gross income to reduce your taxable income.
2. Stable housing costs
Unlike rent, which usually increases every year, the second you get a fixed mortgage, you know your monthly payments for up to 30 years. Not only do you know your payments, but since your earnings will probably continue to grow, your mortgage will take a smaller percentage of your total dollars as time goes. Do you know how much rent you will be paying in 10 or 15 years from now?
A home is an automatic savings account. First, you put money aside every time you pay part of your principal. Second, over time, your property takes value (approximately 5% every year). Now 5% might not look like a big amount at first, but in fact, it’s probably much more than you would think. Lets say you bought a house for $150,000, after one year, it’s worth $7,500 more. Some people may think that it’s only 5%, but if fact, if you only put 20% down ($30,000) when your purchased the house, your real return on investment is 25%!! (minus your mortgage payments and other expenses).
As an owner, you can do whatever you want to improve your home. You are your own landlord, and you get the benefits of your improvements. If you were renting, would your landlord change the kitchen tiles because you did not like the color? What about that garden that you couldn’t have before?
5. More living space
Indoors and outdoors. It’s a fact, home owners have more space than tenants. Even condominium are usually more spacious than apartments. Your own garage, storage room, laundry room, and, very often, bigger rooms.
And now, the 3 worst reasons to buy a house
1. It’s better than the stock market
Some people think, with the current anemic stock market, that homeownership is the best way to build great wealth. But… past performance results is no guarantee of future results.
It’s true that being a homeowner can be a good financial foundation for the future, because it forces you to save (in mortgage payments that build your equity).
House prices, however, don’t always go up. Just ask homeowners in Boston, Dallas, Houston, Los Angeles, etc. They all suffered major real estate recessions in the past 20 years.
The home prices in Los Angeles took almost 10 years to regain their peak after dropping more than 20% in the 1990s!
2. It’s better than throwing away money on rent
When you send a check to your landlord you are exchanging it for a place to live. You’re also getting the flexibility and freedom to move much faster then when you buy a house. When you rent, it’s the landlord, not you, who is usually responsible for maintenance, repairs and fixing the toilet that blows up in the middle of the night.
Homeowners don’t have to deal with rising rents and recalcitrant landlords, they are, however, stuck with rising taxes and maintenance costs, as well as sometimes not too good neighbors.
3. It’s a tax deduction
Would you give someone a dollar just to get 27 cents in return? That’s basically what you’re doing when you take on a mortgage just to get a tax deduction. Simply put, if you are in the 27% federal tax bracket, every dollar paid on mortgage interest (not the mortgage principal) saves you 27 cents in taxes. That’s not bad, the tax break is nice, and you do need somewhere to live. But you should first make sure you can really afford to own a house before you take the plunge.
You have to be cautious… Low mortgage rates do have a downside: Many first-time house buyers can not deduct their mortgage interest. If a house costs less than $100,000, a couple’s standard tax deduction probably will nullify the mortgage interest deduction.
Many of the real costs of owning a house are not deductible. The government won’t give you a break for insurance, repairs or maintenance… and those costs can really add up.
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