Buying your first house
Owning your own home has been part of the American dream for years. The pride of ownership and sense of belonging have been strong factors in motivating more than 60% of all households to own their own homes. There can be true financial rewards from home ownership.
Here are some financial issues to consider as you move toward that "American dream" of owning your own home.
If you don't plan to stay in an area for a long time, renting may be the best option economically. The costs of buying a house (realtor's commission and closing costs), moving (hiring a mover or renting a truck) and getting a mortgage (points and loan origination costs) can add up. If the value of the home has not risen by that total when you are ready to sell, you will end up losing money.
If you have a great apartment and a low monthly rental rate, it may be difficult to own the home you want at a comparable cost.
If the value of the home you buy rises, you can profit in a leveraged way. Assume you buy a home for $150,000 with a $25,000 down payment and then sell the home for $175,000 (after all costs). Your cash proceeds would be $50,000, or a doubling of your actual cash investment. In other words, the home appreciated about 17% and you made 100% on your money. Remember, that leverage also works in reverse if prices fall.
There are tax advantages with owning your home. Many homeowners are able to itemize deductions for mortgage interest and property taxes on their home. This can result in savings when you file your tax return. The IRS also allows you to exclude any gain on selling your house up to $500,000 if you file a joint income tax return and you meet certain requirements. You should investigate these tax advantages further and talk to a tax accountant to completely understand the tax advantages.
As you make mortgage payments, you build up equity in your home. Every mortgage payment you make includes interest and principal repayment. At first, most of your payment goes toward paying the interest on the loan, with only a small portion being used to pay off the principal amount. Most lenders allow you to make extra "principal only" payments in addition to your regular monthly payment. If you can afford to do this, it's a great way to save on interest costs, gain equity faster and pay off your loan earlier.
Home ownership provides financial flexibility. Your home may be the most valuable asset you own. It can serve as a reflection of your financial stability and it can even be a source of collateral for other borrowing. With a home equity loan, you essentially are pledging the equity in your home for additional borrowing. Home equity loans can be a low cost way of consolidating other debts you have, perhaps at a lower interest rate, and you may be able to receive income tax benefits along the way.
How much home to consider
Buying and owning a home can be expensive. You may need funds for a down payment and any mortgage closing costs before you purchase a home. After you buy, you will have monthly mortgage payments, property taxes, and insurance. And don't forget all those "other expenses" like utilities and maintenance costs. If you're like most homeowners, you will also want to furnish your new home. It's good to keep track of all these "extras" and build a budget when making your decision.
Determining how much to spend on a home can be complex. You probably want as nice of a home as possible, but you want to be able to afford it. What you can afford depends on the size of your mortgage, mortgage rates, costs of home ownership, your other expenses and your income. If you'd like help determining what you can afford, visit one of our branches or call 1-800-288-3425 to speak with a mortgage advisor.
Our mortgage calculator is also a great resource that can help you estimate mortgage payments.
Tax benefits from home ownership
Many taxpayers find that the interest on their mortgage and the annual property taxes they pay are large enough for them to itemize their deductions instead of using what is commonly referred to as the standard deduction. For many homeowners, their interest and property taxes exceed those amounts. Be sure to keep track of when you pay your property taxes. Some taxing districts have due dates close to the end of the year and you have to pay before December 31st to get the deduction. (Note that standard deductions are subject to change.)
The IRS also allows you to exclude any gain on selling your house up to $500,000 if you file a joint income tax return and meet certain requirements. You may want to investigate these tax advantages further or talk to a tax accountant to completely understand the tax advantages.
Potential gains from selling your home
The housing market can fluctuate wildly. A down cycle may be bad news for existing owners, but very good news for those buying their first home. When the housing market is in an upswing the value of your home usually rises.
If you are like millions of others, owning your own home is a primary financial and lifestyle goal. The pride of ownership and the financial rewards are attractive. Just make sure you understand all that is involved before you make the decision to own.
We can help
If you are a first-time buyer, we can help walk you through the home buying process in simple, easy-to understand language. Mortgages can be complex and not every type of loan is right for every person. Let us know what you need, and we'll help you find the option that best fits you and your family's needs. Visit one of our branches or call 1-800-288-3425 to speak with a mortgage advisor.
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