Before buying your first house
Before 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 somewhere have been strong factors in motivating over 60% of all households to own their own homes. In addition, there can be true financial rewards of home ownership. However, you need to understand the risks in order to reap the benefits.
Here are some financial issues to consider as you move toward that "American Dream" of owning your own home.
Home values rose substantially in most parts of the country several years ago. With a strong economy and low mortgage rates, the demand for housing pushed up the prices people were willing to pay. These rising values have enabled many to collect large profits when they sold their homes. However, home values do not always appreciate and certain areas can be hit hard when a slowdown in demand occurs. We have seen homes drop in value, and in some cases drop substantially.
If you plan to stay in an area only a short period, renting may be economically advantageous. The costs of buying a house (loan origination fees, closing cost, realtor's commission, etc.) and moving (hiring a mover or renting a truck) 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 great deal on rent, it may be more cost effective in the short term to stay where you are.
Now some good news
If the value of the home you buy goes up, you can profit in a leveraged way. Let's 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 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 may want to investigate these tax advantages further or talk to a tax accountant to completely understand the tax advantages.
You build up equity in your home as you make mortgage payments. Every mortgage payment you make includes interest and principal repayment. Over time, the principal repayment reduces the remaining amount you owe. In the first few years, most of your payments will be interest. It is in later years that your equity build-up really takes hold.
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.
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 that there can be some downsides before you make the decision to own.
Our mortgage lenders are more than happy to help you decide if buying a home is the right decision for you, and they can help you find affordable financing to help make your home ownership dreams come true. Visit www.starionfinancial.com/mortgages/ or call your nearest Starion Financial location and ask to speak to a mortgage lender today.