Does Your New Year’s Resolution Include Owning Your Home?
Brent Lucas of Guild Mortgage, M Realty’s featured partner, details the benefits of owning your home versus renting.
Nearly a third of households are still renting. If you’re one of them, you could be paying a hefty price.
Estimates for 2015 are soaring. Zillow predicts that growth in rents will outpace home values in 2015 due to skyrocketing rental demand. The combination of young adults renting longer and families continuing to rent after losing their home to foreclosure has increased the rental market demand… and with higher demand comes higher rental prices. In fact, renting may be COSTING you a bundle.
Let’s look at an example…
If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.
And speaking of having nothing to show for it, how about any improvements you might make to a rental property? It’s not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what… all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.
With convenient down payment options still available for qualified buyers, affordable home prices and low interest rates, the very same money could have been used toward home ownership.
Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment-including property taxes and insurance-of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.
And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After five years, the $300,000 mortgage could be reduced to $279,000, adding $21,000 to your net worth!
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Don’t fall victim to the national headline hype. Remember, buying a home is a big step, but it is almost always one in the right direction.
If you’d like to learn more about how home ownership might be the right fit for your current situation, now is the perfect time to reach out to your favorite real estate agent to be connected with a financial professional like Brent.