Five advantages to owning a home...

To piggy-back on my last blog, I thought this blog post from Redfin  from April 21, 2014 was interesting.  It says it very well.

Five advantages to owning a home:

Your home is your castle, but there are also many financial advantages of owning a home. Here are five ways that owning can be better than renting.

1. As a Hedge Against Inflation
Your rent will go up on a regular basis, while your payment on a 30-year fixed mortgage will always remain the same.

Let’s say your monthly rent is $1,800. Assuming inflation (your rent increase) is 3 percent, in five years your monthly rent will be $2,026. By then, you will have paid about $115,000 of your landlord’s mortgage.

2. To Build Your Personal Wealth
Stop paying your landlord’s mortgage. When you own your home, your mortgage amount is going down and your property value is going up.

No other investment, asset or debt is as misunderstood as a home. A home can be a wonderful and lucrative investment, but like any investment, it needs to be regularly reviewed, maintained and, when appropriate, sold. Even if your home is paid off, you still pay costs for repairs and upkeep, taxes and insurance. But like any investment, if you own it long term, take care of it and sell when the market is right, you stand to make a great gain.

3. Tax Savings (Federal and State)
Under Section 163 of the IRS code, interest on loans used to acquire, construct or improve real estate is deductible on up to a $1,000,000 mortgage.

Interest on loans tied to real estate for any reason is deductible on up to a $100,000 mortgage. For example, interest on the first $100,000 of a home equity line of credit (HELOC) is tax deductible.

Let’s say you make $100,000 per year and rent a home for $1,800 per month. You would have to pay taxes on your entire income of $100,000 when you are renting that home. If you purchase a home with a monthly payment of $1,800, you only have to pay taxes on $78,400 of your annual income because the interest you paid on your mortgage can be used as a tax deduction.

4. Asset Diversification
Unlike with a 401(k) or IRA, when you invest in a home you can live in it while the investment grows.

Owning a home over an extended period of time is usually more lucrative than renting. With good planning and execution, you can learn to minimize the cost of homeownership and maximize the ability to create real wealth. Many small business owners have a home office and can use the home office as a tax deduction while they are earning income. Other homeowners will rent out a bedroom and use the rent to pay down their mortgage and gain equity faster.

5. Forced Savings
Monthly mortgage payments lower your mortgage, essentially creating a forced savings account.

In five years with a $1,800 monthly mortgage payment, you will have paid $29,331 of the principal on your mortgage. That would be money in your pocket if you choose to sell. For this example we use a $345,000 mortgage loan amount at a 4.75 percent interest rate, 4.881 percent APR and use a standard amortization table to come up with the principal pay down.

To: view the original article.  

Thank you for reading!  Francis

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates
A place worth noting: Our Brother's Home in MountainView

Some advice to home buyers.

Some advice to home buyers:

 
There is plenty of advice around, available to new homebuyers, - no shortage of good words, must-do's, encouragements, explanations and training, etc...  I do not mean to be comprehensive in this blog, but I just wanted to say a few things coming to mind, in light of what is going on out there: the current local market, fast-going environment, competitive to the extreme, sometimes ruthless.


Taking a bit of perspective, I just wanted to throw some ideas out there and remind of some basic main ideas:

• Home buying doesn’t begin with home searching; it begins with a mortgage pre-approval.  Often, first-time home buyers fear getting pre-approved because they’re
  
  afraid the lender may tell them they do not qualify for a mortgage or they qualify for a loan smaller than expected.  However, by getting preapproved, buyers will make a financial decision rather than an emotion one.  Also, knowing that they can qualify for a certain loan (depending on the terms of the loan), they will feel more confident in their endeavor, as they will be sure of what they can really buy (in $), as they are looking at homes.
• Home buyers need to think of a house as a long-term commitment.  If a buyer may have to switch jobs in a year or two and may have to move for the job, they should think twice about buying a house.  Ideally, buyers should picture themselves living in the house for five to seven years.
• Should a buyer have to move after a few years, following the above train of thoughts, they may want to think in terms of an investment for the long term: a "retirement account" - they could rent out the property.  Just saying it is a possibility for people thinking "long term".  (see this article from the LA Times)
• Some first-time buyers make the mistake of spending all of their savings on the down
  
  payment and closing costs, and sometimes borrow on their 401K.  However, it is not good to be left with no savings at all for home repairs and other unexpected expenses.  It could make more sense to get in the market with a smaller property, i.e. a condominium/townhouse, and move up 3 to 5 years later.

 

• Should there be a lot of competition for the chosen house, give it your very best. 1/ there will be no regrets should it not pan out, 2/ chances are that in a year or two, you will not remember exactly the price you paid, 3/ there is a cost in searching for too long a time, both psychological and monetary; or I should say there is "savings" in just getting it done earlier rather than later: interest rates can go up, prices can go up, and moving into your new home is much better than looking for it week after week.

 

As always, thank you so much for reading, and if you like what you read, let your friends know!

 

Francis

Silicon Valley real estate specialist
Detailed, local trends etc...
Current mortgage rates