Why Should I Purchase a Home Instead of Rent?

Written by Clarence R. Biggs

When it comes to living in the US, the benefits of owning a home far outweigh renting one.  Here are the top reasons why:

1.  The one real estate question I hear every day is  “Should I buy a home or rent since renting is cheaper?”  I can honestly tell you that purchasing a home is one of the most smartest investment choices you will ever make in your life.  You should only rent until you are financially stable enough to purchase a condo, townhouse, or home in your area.  Most first time homebuyers don't understand or just don't consider the benefits of home ownership.  The tax code allows homeowners to deduct the mortgage interest from their tax obligations.   For many people this is a huge deduction, since interest payments can be the largest component of your mortgage payment in the early years of owning a home.   Depending on your tax bracket, the tax deductible mortgage interest and other government tax incentive could make your mortgage payment equal to or near your current rent payment.

2.  You will build wealth over time by buying a home as soon as possible and paying down the principal balance of the mortgage every month.  The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Therefore, as the months and years go by, your equity grows.  Additionally, your wealth will continue to grow over the years with gains in increasing home prices.

3.  Don’t forget to discuss all the new tax deductions possibilities with your CPA or Tax Preparer on the first year you purchase your home.  You can also visit the IRS website to find out about all the first year deductions on your tax returns.  Make sure you take a close look at claiming the points (also called origination fees) on your loan, no matter whether they are paid by you or the seller.  The savings are considerable because origination fees can reach up to 1 percent or more of the total loan amount.  Also, discuss deducting the Real Estate property taxes paid on your residence from your income taxes.  

4.  I always tell my clients that a mortgage is like a forced savings plan.  Paying that mortgage every month and reducing the amount of your principal is like putting dollars into your savings account for retirement.  Each month you are building up more valuable equity in your home. In a sense, you are being forced to save without thinking about it. 

5.  Understand that buying is cheaper than renting in the long term.  In the first few years, it may be cheaper to rent. But over time, as the interest portion of your mortgage payment decreases, the interest that you pay will eventually be lower than the rent you would have been paying. But more importantly, you are not throwing away all that money on rent. You must live some place, so instead of paying off your landlord’s home or building, pay off your own and keep the money in the family!

6.  Lastly, when you are ready to sell your home, you may qualify for the capital gains exclusion, which means tax-free money in your pocket for retirement.  If you buy a home to live in as your primary residence for more than two years, then ask your Tax Preparer if you qualify to keep profits up to $250,000 if you are single, or $500,000 if you are married, and not owe any capital gains taxes. That's right, NO CAPITAL GAIN TAXES!  Historical home charts have shown that prices rise and fall over periods of time, but they always recover and move beyond the previous peak in the market.  If you sell your home when prices are high, and take advantage of this tax benefit, you could instantly have a huge nest egg in your bank account. 

7.  I want to encourage you to take the first step towards home ownership by contacting me.  I will guide you through this complicated process and make it as painless as possible.  You should start the pre approval process now even if you are thinking about purchasing 6 months to 1 year from now.  Know what you can afford, where you stand with your credit score, and set goals so you can start saving for your dream home.   Make the smart choice and call me today!

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