Most people look forward to buying their first home. After all, it is the American Dream. But some people may be undecided if buying a home is really the right thing to do. They may feel somewhat overwhelmed with the thought of applying for a mortgage and choosing the right home. Having reservations is normal. Everything will fall into place once you have made the decision to move forward. The more information you have about the benefits of home ownership, the less daunting the process will seem. Here are some good reasons why you should buy a home.
Pride of ownership. Making the decision to become a homeowner is making the decision to invest in your future. Owning a home gives you a sense of stability and security. This is the main reason why people want to own their home. You also can make your own decisions about decorating your home to suit your own taste.
Appreciation. Many homeowners see their investment in a home as a hedge against inflation. Although real estate moves in cycles, over the years real estate has consistently appreciated.
Mortgage Interest Deductions. There are tax benefits to owning a home. If your mortgage balance is smaller than the market value, or price, of your home, mortgage interest is deductible on your tax return. Interest paid is the largest part of your mortgage payment.
Property Tax Deductions. Real estate property taxes are deductible for income tax purposes. IRS Publication 530 contains tax information for first time home buyers.
Capital Gains Exclusion. If you decide to sell your home, as long as 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.
Preferential Tax Treatment. If you are fortunate enough to receive more profit than the allowable exclusion upon the sale of your home, the profit will be considered a capital asset as long as you owned your home for more than one year. Capital assets receive preferential tax treatment.
Building Equity in Your Home. The way amortization works, the principal portion of your principal and interest payment increases every month. It is lowest on your first payment and highest on your last payment.
Equity Loans. Interest on credit card balances cannot be deducted for tax purposes. Credit card interest can be up to 22% approximately, but equity loan interest is usually much less and it is deductible. It is beneficial for many home owners to pay off this kind of debt with a home equity loan. Although some state laws restrict home equity loans, in many states consumers can borrow against a home's equity for many reasons.
For information on new or preowned homes, please visit my website at www.shirleyparks.com or call me anytime at 210-414-0966.
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As an SRES® designee, I have received additional education on such topics as tax laws, probate, estate planning, equity conversion strategies, and can offer you information on current market trends as well as valuable resources regarding real estate transactions.
You made some great points, all very true. Alot of renters and would be home buyers just don't realize the signifigance of the tax deductibility you mentioned.
To keep the numbers simple, if you have a new mortgage of $150,000 at 6% - the principle and interest payment is about $900 on the dot. The interest portion of that payment is exactly $750.
A typical buyer that is in a roughtly 25% tax bracket will be able to deduct an extra $188 bucks a month from what they are having witheld or what the owe each month in taxes (25% of the $750 interest). Therefore, that $900 a month payment is going to feel like $712. This is assuming they itemize their taxes which many first time home buyers will begin doing. Great post!
Thanks for commenting. Your information should look very attractive to a potential buyer.
I like the interest part a lot and appreciation used to be good but that is a hard sell anymore.
Very informative article. Buying a house is a serious decision. It is the largest purchase one has ever made in his life. It is not an easy task to find an ideal place to live. Recently I have come across one interesting service http://climate.fizber.com/ With the help of climate watch homebuyers can check what the climate is like in another town or city before they move there.
Thank you, Nika, for this information. That is a great idea.
Gene, appreciation depends on your local area.
Shirley - It is good when someone takes time to explain the present and long term responsibilty to home ownership. Whether you purchase or rent you will always need a place to live. I feel it is best to invest in ownng your own home; it's yours at end when you have made that payment.
Shirley It always amazes me that no matter well it is explained there are some renters who never get it, Karen
House prices are dramatically low in our area. It's a great time to purchase a first home.