Why Buy!

Appreciate Appreciation

In 1989 a young Indiana couple purchased a home for $63,000.  They bought it with a FHA mortgage.  Their total “out of pocket” cost was $3,000.  That money covered their down payment, closing costs, taxes, and insurance.  Everything they needed.  Ten years later they went to finance their next home.  The one they picked out was $187,000.  When asked, how much financing they would need – they said $100,000.  They were putting down $87,000!  When they sold their home the down payment was the equity they received.  They sold the house for $162,000 ten years after purchasing the home for $63,000.  Their $3,000 investment had turned into $87,000.  That’s a 290% return per year on their $3,000.

I know it sounds too good to be true.  When they were asked, “What did you do to the house?”  They said nothing – they kept it up and made their mortgage payments.  You’re also making mortgage payments right now, your landlord’s.  For those of you that have a retirement account, you would agree that if you made a 20% return last year, you’d be happy, right.  Consider that against a 290% return.     

Owning a home means a significant income tax break.

When you buy a home, the interest on your mortgage and the real estate taxes on your home are both tax deductible.  Consider this example:  On a $100,000 mortgage with an 8% interest rate, you pay $8,000 in interest your first year.  If this home has property taxes of $1,000 each year, you make a total of $9,000 worth of tax-deductible payments.  If your income is $40,000, without a home, you pay income taxes on $40,000.  Now that you have purchased a home, that $9,000 of tax-deductible payments will be deducted and you’ll only pay taxes on $31,000.  If you are in the 25% tax bracket, you’ll receive a tax rebate of $2,250, (25% of $9,000) at the end of the year.  However, you don’t have to wait.  When you started your current job, you filled out a W-4 form.  This form determines the withholding allowances that you are going to claim on your income.  You never had a reason to complete the back of the form.  Now you do.  By claiming the legitimate withholding allowances you receive from home ownership, in the example above, you will receive approximately $187.00 more per month in take home pay instead of having to wait until the end of the year-courtesy of your new home.

Remember you are paying Interest and Real Estate Taxes right now-they’re just not yours-they’re your landlords.  Your landlord is receiving these benefits.