If
you are still struggling with those first decisions, here are some facts that
might help you make that first step towards becoming a home owner.
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 (In
the Portland area rents have increased 3.6% this past year). That means that an
apartment or home renting for $1000 per month will cost more than $1300 per month
in ten years. If you rent the same home for ten years, the total amount you would
pay for rent will equal $137,567.
Year | Monthly
Rent
avg. increase 3%/year | Total
Annual Rent |
| 1 | $1,000 | $12,000 | 2 | $1,030 | $12,360 | 3 | $1,061 | $12,731 | 4 | $1,093 | $13,113 | 5 | $1,126 | $13,506 | 6 | $1,159 | $13,911 | 7 | $1,194 | $14,329 | 8 | $1,230 | $14,758 | 9 | $1,267 | $15,201 | 10 | $1,305 | $15,657 |
| | Total
Rent Paid Over 10 Years | $137,567 |
|
Tax
Advantages of Owning a Home Results in Savings
None of that $137,567 is
returned to you, either through savings or as an investment. Home ownership, 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 (Your bank or
credit union may also have "no money down" home purchase plans available).
You finance the balance with a 30 year fixed rate mortgage at 6.5% interest. Click
here for a mortgage calculator for other loan amounts. Your monthly payments
(not including utilities, insurance, etc.) are:
Monthly
Mortgage and Tax Payments | | Mortgage | $1,264 | | Property
Tax (est.) | $230 | | Total
Monthly Payment | $1,494 | | Tax
Savings per Month (assuming a 30% income tax bracket | | Mortgage
interest tax deduction | -$322 | | Tax
deduction for property tax | -$68 | | Total
Monthly Tax Savings | $390 |
| | Total
Monthly Cost After Tax Savings | $1,104 |
|
You
actually save $390 a month by owning your own home. On a yearly basis, the saving
is even more dramatic:
Total
Annual Costs | | | Home
Owner | Renter | | Annual
Mortgage/Rental Payment | $15,168 | $12,000 | | Real
estate taxes | $2760 | $0 | | Tax
deduction for Mortgage Interest | -$3864 | $0 | | Tax
deduction for Property Tax | -$816 | $0 | | Mortgage
principal accumulation | -$2232 | $0 | | Appreciation* | -$9450 | $0 | | Total
Annual Cost | $1566 | $12,000 | | *Based
on 4.5% annual appreciation rate from National Association of Realtors |
|
Home
Ownership is a Good Investment
For the majority of Americans, their home
is their largest financial asset and a major part of their investment portfolio.
It’s a good thing, too, since stock market value has declined since 1998,
while home price appreciation has increased. The National Association of Realtors
estimate that home value rises, on average, by 4.5% a year. That’s a steady
return on investment: Our own home is a much less volatile asset than stocks,
bonds, or mutual funds.
