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Ed Savard, Realtor Sponsor & Fairway Estates Resident
386.334.2587
EdSavard@bellsouth.net

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Why Rent When You Can Buy?

Buying a first home can be an intimidating process. But the first step is making those first decisions: I want to own my own home; I can afford to own my own home; owning my own home makes sense for me financially and emotionally. If you are still struggling with those first decisions, here are some facts that might help you make the first step towards becoming a homeowner.

You Can't Afford NOT to Buy A Home!

Over the last ten years, the cost of rental housing in the U.S. has increased an average of 3 percent per year. That means that an apartment or home renting for $1,000 per month will cost more than $1,300 a month in ten years, the total amount you would pay for rent will equal $137,567!

Tax Advantages of Owning a Home Result in Savings

None of that $137,567 is returned to you, either through savings or as an investment. Homeownership, on the other hand, has tax advantages over renting a home, and those advantages can help you save money. Unlike your monthly rent' part of your monthly mortgage payment "comes back to you" in tax savings. Here's an example:  You purchase a home that costs $210,000. Your down payment is $10,000 (plus closing costs-expenses incurred to actually process the transaction). You finance the balance with a 30-year fixed rate mortgage at 6.5 percent interest. Your monthly payment (not including utilities, maintenance, insurance, etc.) are:

MONTHLY MORTGAGE & TAX PAYMENTS  
     mortgage $1,264
     property tax (@1.25 tax rate*)      230
Total Monthly Payment $1,494
tax saving per month (assuming a 30% income bracket)
     mortgage interest tax deduction $   322
     tax deduction for property tax        68
Total Monthly Tax Saving $   390
Total Monthly Cost After Tax Savings $1,104

*property tax rates vary by city and county

You actually save $390 a month by owning your own home. On a yearly basis, the savings is even more dramatic:

Total Annual Costs Homeowner Renter
annual mortgage/rental payment $15,168 $12,000
real estate taxes     2,760            0
mortgage interest tax deduction -3,864            0
tax deduction for property tax    -816            0
mortgage principal accumulation -2,232            0
appreciation* -9,450            0
Total Annual Cost $1,566 $12,000

*Based on 4.5% annual appreciation rate, from the NATIONAL ASSOCIATION OF REALTOR® Median Sales Price data series

Homeownership is a Good Investment

For the majority of Americans, their home is their largest financial asset and a major player in their investment portfolio. It's a good thing, too, since stock market value has declined since 1988, while home price appreciation has increased. 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; one's own home is a much less volatile asset than stocks, bonds or mutual funds.

As an example, let's look again at that $210,000 home. Unlike your rental unit, your home should appreciate over time. Assuming a 4.5 percent appreciation rate*, your home will be worth $219,450 in the second year of ownership., $229,325 in the third year of your owning it etc. After ten years, your $210,000 home will be worth $312,080. Not only do you earn a rate of return on your original purchase price, but you also get a return on any subsequent appreciation.
*Average price appreciation from 1970-2005 was 6.7%

Homeownership Builds Wealth for Households

The Federal Reserve Bank estimates that homeowners have a net worth almost 36 times more than that of renters. In 2004, the median net worth for homeowners was $184,400 compared to $4,000 for renters. How do you build up your net worth? Through those "appreciating returns" on your home.

We've already seen how your $210,000 home is worth $312,080 in ten years. In addition, you are paying down the principal on your mortgage. Remember that $200,000 you borrowed at 6.5 percent over 30 years 0 that debt amount is decreasing every month and every year.

Year Home Price Mortgage Debt Net Worth
1 $210,000 $200,000 $10,000
2  219,450  197,765  21,685
3  229,325  195,379  33,946
4  239,645  192,834  46,810
5  250,429  190,119  60,310
6  261,698  187,222  74,476
7  273,475  184,131  89,344
8  285,781  180,832 104.948
9  298,641  177,313 121,328
10  312,080  173,559 138,521

After the first year, you now only owe $197,765 on a home that is worth $219,450. You have "netted" a $9,450 increase in the value of your home, plus $2,235 a year that previously you owned as part of your mortgage debt. As you debt decreases and the home value increases, you accumulate wealth from the value of your home. In addition, over this ten-year period, you will have significantly lower after-tax payment for housing. Each year as your home appreciates and your continue to pay down your mortgage debt, you increase your own net worth.

Homeownership - It's NOT Just About Money

The "numbers tell the story" should ease your mind about the financial aspects of becoming a homeowner. But there are other, less monetary, benefits to homeownership. Several research studies indicate 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 that two thirds of American households own their own home. They know the benefits of homeownership, form the accumulation of home equity, tax incentives, 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."

We would be happy to guide you to first-time homebuyer programs in our area, as well as assist you in searching for and buying your next home!!

 

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*Disclaimer - This website is in no way affiliated  with the Fairway Estates Homeowners Association, its purpose is to provide a free informational website for the residents of  Fairway Estates. Information is believed to be accurate but not warranted to be so.