Are you unsure about becoming a homeowner?
Do you wonder about the tax incentives?
Are you worried about whether homebuying is a good investment?
Buying a first home can be an intimidating process. But the first step is deciding if: I want to own a home; i can afford to own a home; owning a home makes sense for me financially and emotionally. If you are still struggling with those decision, here are some facts that might help you take the first step towards becoming a homeowner.
After the first year, you now only owe $187,441 on a home that is worth $200,000. As home price growth returns to a normal level the amount of wealth that you net from appreciation will increase. At the same time, mortgage payments reduce your outstanding debt. As your debt decreases and the home value increases, you accumulate wealth from the value of your home. In addition over the ten-year period, you will have a significantly lower after tax payment for housing. Each year as your home appreciates and you continue to pay down your mortgage debt, you increase you own net worth.
Why Buy Now?
You may wonder whether it is worthwhile to wait to purchase your home until prices are at their lowest. Prices are not the only factor that should drive your decision. Currently, interest rates are near generational lows that greatly improve the affordability of homes. Further on the annual cost table, you can see that even if home prices decline, the possible tax savings of owning a home can lead to a lower cost for the buyer, not the renter. Most importantly, when you have made the decision to commit to homeownership because you are ready, market conditions are a secondary concert. In fact, the national association of realtors 2009 Profile of Home Buyers and Sellers found that four in ten first-time buyers purchased a home because the buyer was ready to make the commitment to homeownership.
Rents Increase Over Time
Over the past ten years, the cost of rental housing in the U.S. has increased an average of 3.5% per year. If that trend continues, that means that an apartment or home renting for $1,000 per month will cost more than $1,300 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent will equal $140,777!
Owning Can Lead to Tax Savings
None of that $140,777 is returned to you, either through savings or as an investment. Homeownership, on the other hand, often has tax advantages over renting a home, and those advantages can help you save money. For many homeowners, part of the monthly mortgage payment “comes back to you” in tax savings.
Buyers Usually Come Out Ahead
Given that price growth has recently deviated from its usual pattern of increase, the table on the next panel considers four different price growth scenarios, including a loss. You may be surprised to see that the homeowner still comes out ahead of the renter even if there is a small decline in the home’s value over the next year. Favorable interest rates and lower pieces have ushered in some of the best affordability conditions in a generation.
Homeownership is a Good Investment for Qualified Buyers, but no Investment is Guaranteed
For the majority of Americans, a home is their largest financial asset and a major component of their investment portfolio. The National Association of Realtors estimates that home value rises, on average, by 4.5 percent a year. That’s a steady return on investment. Still, no investment is guaranteed. Many Americans lost value in both their homes and investment accounts in the last couple of years, and it will take some time to recover. Even when the recent downturn is considered, one’s own home is a much less volatile asset than stocks, bonds, or mutual funds. And most importantly, it is a place to call home while you own it.
Homeownership Builds Wealth for Households
The Federal Reserve Board estimates that homeowners’ net worth has ranged between 31 and 46 times more than that of enters in the years 1998 to 2007. In 2007, the median net worth for homeowners was $234,200 compared to $5,100 for renters. Even though that difference will surely narrow as a result of house price declines since 2007, homeowners will likely still have substantially greater net worth than renters. How do you build up your net worth? As a homeowner, you build wealth in two ways: through paying down the principle on your mortgage and through these “appreciating returns” on your home.
Homeownership – It’s NOT Just About Money!
The “numbers tell the story” examples should ease your mind about the financial aspects of becoming a homeowner. But there are other, non-financial benefits to homeownership that may partially explain the fact that buyers buy when they are ready. Several research studies indicate that homeownership adds to the value of communities, has positive effects on children, and even contributes to increased voter participation rates.
Homeownership: The American Dream
More than two thirds of American households own their home. They know the benefits of homeownership, from the accumulation of home equity, other financial benefits, and the pride of owning a place of their own. They also had to take that first step of deciding “I’m ready to be a homeowner.” Realtors assisted many of today’s 75 million homeowners in both their decision to buy and their first home purchase. Realtors are real estate professionals who are members of the National Association of Realtor and who abide by the Association’s strict Code of Ethics and Standards of Practice. They can help guide you to first-time homebuyer programs in your area, as well as assist you in searching for and buying your home.
[For more information on NAR’s suite of products designed to educate real estate professionals and their clients about relevant legal, ethical, environmental, research and marketing topics, contact us: 1-800-874-6500 or www.realtor.org/store]
