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Stop giving your landlord thousands of dollars! Rents are skyrocketing and it may be cheaper to buy a home.
Benefits of buying a home
1.Build Wealth
First of all, your home will appreciate in value and I believe real estate is
one of the best investments you will ever make. For example, if you buy a home
or condo for $200,000 and it appreciates 5% per year, you will have built up
approximately $50,000 equity in 5 years. Also, you need to consider your
monetary return on the money you actually invest in the property. Let's say you
put 3.5% down and closing costs are approximately $4,000, you would have
made $39,000 on a $11,000 investment-what a return! Obviously, there are other
costs such as repairs and upkeep that you must subtract from the equation but
you get the picture.
2. Tax Deduction
Secondly,
the interest and real estate tax portion of your mortgage payment will be tax
deductible which will give you a lower after-tax payment. Also, PMI is now tax
deductible for new homeowners with adjusted gross income of $100,000 or less. Consult your accountant to determine
your tax benefits.
Rent Versus Own Example:
Purchase $200,000
single family home with 3.5% down
payment or rent $1,200 per month?
Assumptions: We will use FHA 30 year fixed program, $196,377 loan amount
with 1.75% Financed Mortgage insurance Premium, 5.25% rate (5.38% APR),
$3,000 year real estate taxes, $200 association dues, and 28% tax bracket.
| |
Rent |
Own |
|
1st mortgage
or rent payment |
$1,200 |
$1,084 |
|
Real estate taxes |
$0 |
$250 |
|
PMI-Private Mortgage
Insurance |
$0 |
$88 |
|
Total payment |
$1,200 |
$1,422 |
|
Tax savings |
$0 |
$335 |
|
After-tax payment |
$1,200 |
$1,087 |
If you plan on renting a 1 bedroom condo for $1,200 month you could buy a
$200,000 condo with 3.5% down payment and pay a monthy payment of $1,422 but
you will save $335 per month on taxes, interest, and PMI so your payment will be
$1,087 on an after-tax basis which is $113 lower than renting apartment. Don't you figure out your budget with net pay not
gross pay..right? Get the idea! Also, if you feel the new payment is a little
too high, you may want to take less federal taxes out of your paycheck so you
can make the monthly payment more affordable since you will be getting a bigger
tax deduction at the end of the year.
Try some first
home buy calculations on your own to see if home ownership is right for
you. Finally, don't forget you will be building up wealth through appreciation
in value.
3. No place like home
Finally, there is nothing like owning your own home. I started out
as a renter, and the thought came to me one day "why am I paying thousands
of dollars in
rent?" I bought a condo in Chicago and lived there for five years,
built up some equity, and then moved to a 3-unit building and I
became a landlord and collected rents from other people. Today, I live in a
brand new beautiful single family home and have my own backyard and
garage and nobody tells me what to do. Is this what you want? You need to start
somewhere, and buying a moderately priced condo or starter home might be your
best bet, but please stop paying your
landlord and
get pre-approved today!
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