You see your friends buying a home, and your family is wondering when you will be buying a house. Actually, you may be giving some serious thought to buying your first home, but you just don’t know if buying a home is the right thing for you to be doing right now. It is very normal to have these reservations. It can be extremely scary! The ‘unknown’ is always the greatest fear. Once you know some of the reasons to buy a house, the less frightening the process will be. I am going to go through eight of the most common reasons to buy a house.
The number one reason people buy a home is the pride of ownership. No more getting permission from the landlord to paint a room, change the fixtures or improve the landscape outside. Home buying creates a sense of belonging to a community gives one a great pride and owning your own home provides a feeling of stability. You also get to experience more space both inside and outside.
Although homes have not seen great appreciation figures recently, homes have appreciated over time. There are statistics that show that homes still are one of the best hedges against inflation and historically are one of the best investments.
The interest portion of your mortgage payment is the largest component. As long as your mortgage balance is less than the value of your home, the interest is tax deductible on your income tax returns. This makes home ownership a great tax savings.
Real estate property taxes paid on a primary residence are fully tax deductible on your income taxes. There is some great detailed tax information for first time home buyers from the IRS in their publication 530.
The capital gain exclusion also provides a profit from capital gains. As long as you have lived in your home as a primary residence for 2 of the 5 years prior to selling the property, you can exclude profit up to $250,000 for an individual- or $500,000 for a married couple-from capital gains. You no longer need to “buy up” or purchase a replacement home, nor are there any age limits. (The “over 55″ rule no longer applies.) This means you can use this exclusion every two years-you could sell a home every two years and keep the profit-tax free subject to certain limitations. For complete details, you should contact your accountant.
Each month that you pay your mortgage, you reduce your principal balance, thus increasing your equity and reducing your debt obligation. As you look at your amortization schedule, you will note that in the early years of making mortgage payments, the largest portion is the interest portion. As you pay your mortgage and your property appreciates, your equity grows. It is like a forced savings!
Having the increased equity can be very helpful if you are looking to make home improvements, pay for college, start a new business, or pay down credit card balances, for instance. This loan is a ‘second loan’, with the property as collateral, and is junior, or subordinate to the first loan. Home owners who carry high balances on credit cards are unable to deduct the interest charged by the credit card companies. This is why some people have used the home equity loan to pay off their credit cards–the interest is deductible. You may also get preferential tax treatment if your home qualifies as a capital asset. If you receive more profit than the allowable exclusion, and you owned your home for more than one year, your home may be determined to be a capital asset. For details, additional information can be obtained from the IRS.
There are other reasons people decide to be first-time home buyers, but these are the most highly ranked. If any of these reasons make sense to you contact me at 612-834-1444 or Linda@Home2MN.com and I will be happy to help you find your first home…or second home…or third home!
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A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks
Nice writing style. Looking forward to reading more from you.
Chris Moran