Why You Should Be A Homeowner

We have talked about Why you should be buying a home now, and why you have a perfect Opportunity, NOW, to get your dream home for the lowest price and payments, and an $8,000 Tax Credit Gift from the Government.

It is time to talk about Why You Should Be A Home Owner and not a Renter.
What is so special, and what are the advantages of home ownership.

#1 An Improved Living Environment for You and Your Family.

#2 Financial benefits to homeownership

#2a Home ownership is a great invesment and it builds wealth

3. Special & Specific financial implications of home ownership

3a.  Apppreciation

3b.  Equity Creation & Forced Savings

3c.  Tax Benefits

Click on each item for a detailed discussion of that subject.

#1- Consider the improved Environment that a home provides for you and your family

• Freedom from  nosey and noisy neighbors. In many cases, your own home provides you with more privacy than rental living. For some people this translates into a quieter living environment, for others it's the ability to have a garden or a garage for the car.



• The ability to change your home as you like. Always wanted a yellow kitchen or a back porch? In your own home, you make whatever changes or improvements you like. This benefit gives you more control over your living environment, allowing you to make adjustments as your family changes or just as your personal taste dictates.


• Improved Living conditions. Owning a home compared with renting leads to a 13 to 23 percent higher-quality home environment. Owners have more of an incentive to make improvements in their home, and create a more positive living environment. This results in the above benefits to their children by creating a better play area or learning area. All of these benefits for children of homeowners increase the longer they lived in owned homes.

• Homeownership builds confidence &  Pride of ownership. Owners possess significantly higher levels of self-confidence than renters. AND.. There's nothing quite like the feeling you get when you pull into the driveway of YOUR OWN HOME.  And why not?  You worked hard for it!  It says, "this is where I hang my hat and it's MINE".


• Homeowners are more involved in civic affairs. This includes voting in the last election, and knowing their elected officials. When you are a homeowner you will WANT to get involved!  Property taxes affect EVERYONE! But it has been proven that renters vote less than owners. Give yourself a voice in what affects you and your loved ones and begin take a part in your community.



• Homeownership provides tax benefits. The typical homeowner that pays a $1,000 house payment will realize tax savings of about $120 each month. Compare that with the tax savings you get when you pay rent, NOTHING!! Rent provides you with a roof over your head. All the tax savings go to the owner of the property!

• Homeownership contributes toward lower crime rates. Homeowners have a greater financial stake than do renters. Therefore, homeowners have more reason to prevent crime by participating in crime prevention programs. The research also states that homeowners are less likely to become crime victims.

• Stability- Renters move every 3 years on average. Remaining in one neighborhood encourages participation in community affairs and activities, you develop lasting friendships, and children benefit from educational continuity.


• Parents who own their own home may be helping to boost their children's educational achievements, and even reduce behavioral problems. 
  


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• Predictability Unlike rent your mortgage payments don't go up over the years so your housing costs may actually decline as you own the home longer. However, Taxes & Insurance costs usually do rise. But, generally these same costs are passed on to the renter at each lease renewal.


• Financial  leverage - This is one of the only ways you can leverage of a low initial investment (down payment) to acquire a high value asset (Your Home). 


• Real Estate is a low risk investment.Though today and other periods of declining markets it is hard to believe this, but a home is a durable, marketable asset. It can be sold at a predictable price to a dependable group of available buyers as long as you allow enough time and exposure.


• The marketability of your home is reinforced by the fact that financial institutions are almost always willing to loan a high percentage of the home's value.


• The ability to use the Home's Equity financially beneficial at every stage of your life including: paying off high interest debt, home improvement, college expenses, medical expenses, starting a new business, and this goes all the way to being a source of retirement income.

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2A

Homeownership is a great investment. Home ownership builds wealth!

The average net worth of Renters earning over $50,000 per year is only $38,000.
Homeowners with the same incomes have an average net worth of $291,000.

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#3  Special & Specific financial implications of home ownership

• Appreciation
• Equity Creation and Forced Savings
• Tax Benefits

#3a Appreciation

Although Las Cruces real estate moves in cycles, sometimes up, sometimes down, but over the years, Las Cruces real estate has consistently appreciated. This consistent appreciation makes your investment in your home a hedge against inflation. Now you need to consider some facts about this benefit.

First is the fact that in the very long term over a period of 20-30 years Real Estate appreciation rates are lower than many other investments (i.e. stocks other equity instruments). They are more equivalent to the rates of return on Government Bonds. But, there are periods of great appreciation which can be taken advantage of if one is fortunate enough to not being in a situation where they are forced to sell in a period of depressed prices. In addition, though other investments have better long term rates of return they require an investment of cash and most people are not consistent in making this investment.  Because your mortgage payment is a forced saving, and the leverage of a small one time investment in your down payment, you will almost always expect to own an asset that could be hundreds of times greater than your initial investment. The total amount of Homeownership equity in America is thousands of times greater than the total of all other sources of wealth for the great majority of Americans.

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#3b Equity Creation and Forced Savings  - Your Mortgage payment that you are forced to pay each month is a savings account for you. Each month less of that payment is interest that goes to the bank and more is cash that is going into the savings account that we call equity in your home. Over time the savings portion begins to increase dramatically each month. Âs we discussed above this equity savings account is financially beneficial at every stage of your life including: paying off high interest debt, home improvement, college expenses, medical expenses, starting a new business, and this goes all the way to a source of retirement income.

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#3c -The Tax Benefits

1) PURCHASE    2) MORTGAGE INTEREST        3) THE SALE

1. The Purchase

When buying your own home, most of the expenses are not tax deductible. But there is one exception that is worth finding.

The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment. In addition, if the day you purchase is on any day other than the first of the month, you will likely pay a charge for "daily interest" between the day of closing and the end of the month. Look on line 901 of your HUD settlement statement. Much more importantly, the IRS says that, in most cases, loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement.

2 Mortgage Interest

You can deduct interest charged on a your initial home loan or any secondary loans you took to improve your principal residence. In the early years of a loan, most of your monthly payment is interest, so this can really add up. If you are in a 28% federal tax bracket, this can have the effect of lowering your borrowing costs by almost a third, depending on which state you live in.

In addition, you can deduct interest on an additional $100,000 of mortgage debt, which can be used for any purpose. This is called the "Home Equity Loan" exception, and it allows you to tap into your home equity for any purpose. This gives home owners the ability to do what is called "debt-shifting." For example, if you live in an apartment and have a credit card balance of $10,000 at 18% interest, none of that interest would be deductible. But if you owned a home, and you obtained a home equity loan for $10,000 and paid off the credit card, then ALL of the interest expense becomes automatically deductible. Furthermore, the rate on the home equity loan is likely to be very much lower than credit card rates. This same technique works with any and all personal debt, from car loans to consolidation loans - with only one hitch. In every home equity loan, you have pledged your house as collateral for the loan. If you fail to pay the payments as agreed, you could lose your house to foreclosure. So be careful in using this technique.

These interest deductions are truly a government subsidy to home owners.

3. The sale -- This is the best financial benefit to homeownership

If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 profit on the sale of the home for married tax payers, and$250,000 for single tax payers, and you will pay no federal income tax whatsoever.

And,  you can do this every two years for the rest of your life

Most states recognize this federal exclusion, so you often get the benefit totally tax free. Unlike previous laws, you don't have to re-invest, and you don't have to be age 55 as was required by the previous regulations.

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