Buying your home V Renting

We all have to live somewhere, but if you are paying rent whether for an apartment or a single family home, you are in fact buying that property for your landlord.

The greatest gift you can give yourself and your family is to own you’re your own home, even in today’s housing economy.   As a first time buyer there are Federal and local programs designed to aid you in the purchase (a First Time Buyer is generally classified as someone who has not owned a home in the past three years)

Programs will vary from state to state, so the best place to start would be to log on to www.realtor.com for a local realtor who could supply the information.

Consider the following:

Let’s say you are living in an area where a three bedroom home sells for $150,000 and mortgage interest rates are at 4.00%... rent for a three bedroom home in that area home should be $950 per month; the following compares ownership with renting:

Monthly rent of comparable homes.………………………………………….$       950.00

Annual rental cost………………………………………………………………$ 11,400.00

Purchase Price………………………………………………………………….$150,000.00

Down Payment @ 5%.....(source of down payment addressed later).........$   7,500.00

Mortgage Payment on $142,500.00 mortgage @ 4.00%.............................$      680.14

Property Tax and Insurance..(estimated)…………………………………….$      175.00

Total monthly…………………………………………………………………….$      855.14

Total annual cost………………………………………………………………...$ 10,261.68

Annual savings of ownership………………………………………..$ 1,138.32

But that is just the beginning:

Federal mortgage interest write-off reduces your actual out-of-pocket costs by allowing you to deduct the interest from your personal income when filing your annual tax returns.   You should consult an accountant for the actual savings you may earn but for simplicity let’s say you are in the 28% tax bracket and earning $45,000.00 a year, normally without any deductions you would pay to the IRS……$12,600.00 per year.

Now let’s calculate the savings using the same numbers:

You can only write of the mortgage interest which in the first year will be…………..$  3,310.00

Deducted from your income of $45,000.00 <$3,310.00> = taxable income………..$41,690.00

Adjusted IRS Taxes……………………….@28%.......................................................$11,673.00

Annual IRS tax savings of ownership………………………………………….$  926.80

Combined savings…………………………………………………………………$2,065.12

4% appreciation……………………………………………………………………$6,000.00

As we said consult with your accountant because now you are in the long form of tax accounting and will qualify for other deductions including similar write off in most States income taxes.

But the benefits don’t end there:

Now what if you took the annual IRS and the ownership savings and applied it to the principal balance, you would be able to pay off the original 30 year mortgage in approximately 18 years or less, now you have a home valued at somewhere in the range of $230,000.00 to $250,000.00 free and clear.    If you were still renting the Landlord would be that much richer, plus all the extra money from the rent increases !

Oh the down payment!...If you do not have the cash for the down payment the Feds allow you to borrow it from a family member or benefactor and pledge the Federal Tax Credit for repayment.  Also as we stated at the beginning some state and/or counties have first time buyer assistance programs to help you get started, consult a local Realtor.