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Renters Have Much to Gain by Pursuing Home Ownership
First-time buyers and people who have not owned a home in the past three years will get a $7,500 tax credit if they purchase a home on or after April 9, 2008 or before July 1, 2009
Written Oct 27, 2008, read 37 times since then.
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Renters Have Much to Gain by Pursuing Home Ownership
Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage lenders will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages. Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment. The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up! However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down. In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage lender should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf. First-time buyers and people who have not owned a home in the past three years will get a $7,500 tax credit if they purchased a home on or after April 9, 2008 or if they purchase one before July 1, 2009. Income limitations are:
Buying a home vs. renting is a big decision that takes careful consideration, as most mortgage lenders will agree. But the rewards of home ownership are great. For many years, purchasing real estate has been considered an extremely profitable investment. It is an achievement that offers a sense of pride, financial stability and potential tax advantages. Yes, there are certain responsibilities associated with owning a home. Landlords will often argue the benefits of renting, and for obvious reason. If you are renting, you’re helping them make their mortgage payment. The numbers are staggering if you look at it this way. If you are paying $1,000 per month for an apartment, and you know your rent will increase 5% every year, then over the next five years you will pay your landlord $66,309. If you are currently renting a house, you may be paying much more than that each month. Either way, you gain no equity by shelling out this monthly housing expense and you certainly won’t benefit when the property value goes up! However, if you were to purchase your own home or condominium, you would be well on your way toward building equity within that same five-year period. By choosing a fixed-rate loan program, you can have the comfort of knowing that your monthly mortgage payment will never go up. In fact, you would have the option of refinancing to a lower interest rate at some point in the future should interest rates drop, and this would cause your monthly mortgage commitment to go down. In addition to building equity, there are tax advantages that come into play with home ownership. Depending on your tax bracket, owning a home is often less expensive than renting after taxes. Interest payments on a mortgage below $1 million are tax-deductible, and your mortgage lender should help you evaluate the tax advantages of various loan scenarios, and share this information with your tax consultant to glean feedback on your behalf. First-time buyers and people who have not owned a home in the past three years will get a $7,500 tax credit if they purchased a home on or after April 9, 2008 or if they purchase one before July 1, 2009. Income limitations are:
- Married couples with incomes less than $150,000 qualify for the entire tax credit. The tax credit phases out for married couples with incomes between $150,000 and $170,000. Couples with incomes exceeding $170,000 do not qualify for the tax credit.
- Singles with an income less than $75,000 qualify for the entire tax credit. The tax credit phases out for singles with incomes between $75,000 and $95,000. Singles with incomes exceeding $95,000 do not qualify for the tax credit.
If you sell your home before fifteen years have passed and your home’s appreciation is less than the amount you have to pay back, the loan is forgiven. If you turn your home into a rental or investment property, you must pay back the balance due. To find the loan program that is right for you, your mortgage lender will need to evaluate your monthly household income, current assets and savings, as well as any monthly obligations you may have for credit card payments, car payments, child support, etc. These prequalification factors, along with the report of your credit score, will determine how much house you can afford and what interest rate you will pay for financing. It is also important to let your mortgage lender know what your future goals are, because this will help narrow down which loan option is the best fit for your long-term needs. There are many different types of loan programs available, including “low” and “no” down payment mortgage programs. These types of programs require the borrower to provide a 3 percent of the loan amount as down payment. FHA lenders rule that the mortgage payment, including principal, interest, taxes and insurance (PITI) should not exceed 31 percent of your gross income, and the PITI plus other long-term debt (car payments, etc.) should not exceed 43 percent of your gross income. Housing is an expense that takes a big bite out of the monthly budget. If you are a renter and feel that “home” is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a home owner.
Learn more about the author, Sharon Yonally.
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Article tags
- first-time; homebuyer; mortgage; investment; loan; financing; rent; tax; financial; property; purchase; refinance; real estate; home owner; lender; fixe rate mortgage;
